Sunday, February 24, 2008

Speculation - the Long Term.

There is a vast sum of money tied up in Fossils, Trillions of Dollars, in fact. There are only a small number of Green investment opportunities out there for this money to move to. When that money starts moving, those little companies are going to move up in value much faster than the Fossils will move down.

Compared to Exxon (for example) with 5.4 Billion shares outstanding, Green companies are small in number and small in float. So, what happens if some series of events suggests to investors that Exxon is no longer a safe long term bet, and that Green is the place to be? Well, the Average Daily Volume of Exxon stock is 28 Million shares. At $85 per Share, this amounts to $2.4 Billion per day changing hands every day in this single stock. Even just 1% of the value of these daily transactions would buy a number of shares equal to about 26% of the Average Daily Volume of a company like LDK Solar (for example). So, whereas such a small change would be hardly noticeable to the Stock Price at Exxon, it would significant boon to the Stock Price of LDK.

Now, With 5.4 Billion shares outstanding, for every $1 that the price of Exxon Stock decreases, the combined ownership of that company loses a total of $5.4 Billion dollars in the value of their holdings. Remember that it doesn't require many trades to bring down the price of a stock; it just takes a lack of buyers. If there are no buyers, and somebody is willing to sell at any price, then the value of every single share of stock will decrease until buyers show up to create upward pressure. An institutional investor in a company may be holding tight onto hundreds of thousands or millions of shares of a stock, but they are trapped if the buyers disappear.

The only option for these guys will be to quietly sell some of their own shares while the getting is good. Of course, these guys are sneaky, and they won't be saying anything about what they're doing. The last thing they want is for word to get out that their confidence in fossils is getting shaken, or that they're planning a move to Green Energy. They simply cannot afford to have any competition for those few shares that are available. They have too much money, and they know that everybody is watching what they're doing with it. They'll take it as slow as possible; years if they can get away with it.



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