Earlier this week, Fat Prophets Funds Management provided an update on its listed investment vehicle, The Fat Fund.
Lamenting the lack of value currently in the market, the manager provided an example of the pricing irrationality at the more speculative end of the mining sector.
"What would you pay for $3.9million in diluted cash, and exploration tenements valued by an independent expert at about $6.4million? $10million perhaps? Well, we are in a mining boom. Maybe $20million? Nonsense! Get with the new math. The answer of course is $167million. Well done to the investor who paid 11c per share for Chameleon Mining NL at the end of October."
But according to Fat Prophets, the irrationality is not just at the smaller end of the market. Fund manager Andrew Brown thinks investors in Australia are being driven by greed.
He says the current speculative environment "is encouraging a more widespread ‘greater fool' theory, where folks buy overpriced securities in the hope of re-selling them on an even more overpriced basis to bigger mugs".
"They do it because of meeting a bloke who talks about "weight of money" and their supreme confidence in economic and market conditions. He's called "greed" and he's currently on tour in Australia."
"We prefer his currently excommunicated brother, who's presently resident in middle America, and making frequent trips to Wall Street. His name's "fear"".
Given this cautious outlook, the Fat Fund has increased its cash weighting to 12%. But this cautious approach is hurting the fund in the short term. For the month of October, the Fat Fund returned 0.86% compared to the benchmark return of 2.94%.
At the market close today, the Fat Fund traded at $1.06, below the fully diluted net tangible asset backing of $1.19.
