His speculating instincts had also led him to lend large sums of money to governments even when not knowing where the funds would come from. As security on these large loans he would then be granted monopolies further cementing his power, for example loaning Germany $125 million-dollars (almost $1.9 billion in today's money!) in the interwar years.
His name was Ivar Kreuger a Swedish engineer who became a financier, entrepreneur and industrialist. At his peak he managed to amass a fortune of 30bn Swedish kroner, over $100bn dollars in today’s money, but by 1932 he was dead of suspected suicide, another victim of the great 1929 stock market crash.
The crash had exposed questionable accounting practices where profits were reported when there were none and ever increasing dividends were paid out by attracting new investment and/or looting the treasury of a newly acquired company. This eventually proved fatal for his empire which was so powerful that it even precipitated a world wide ’Kreuger crash’.
Despite his empire being referred to as a great ponzi scheme some of his companies were real businesses and amazingly after 80 years his industrial legacy still lives on. He founded SCA, planning to set up a cellulose cartel using north Sweden’s forestry industry, as well as being a major stakeholder in the telephone company Ericsson (again planning a monopoly!), mining company Boliden and ball bearing manufacturer SKF.
In 1917 after merging several Swedish match companies he founded Svenska Tändstcks AB, known today as Swedish Match. Nowadays the company is a major player in the world with around $12bn sales in snus and snuff (smokeless tobacco), cigars and of course a market leader for matches across the globe.
The stock currently sells at around 217 SEK on the Swedish stock exchange, with a P/E 16 with dividend yield of 3.4%. Nothing out of the ordinary you might think but let’s take a look at some price action since the lows of 2009.
It has gone up like a rocket, around 175% trough to peak in 3 years. I’ve even put in the 50-week SMA to give a better sense of how powerful the uptrend has been.However, since the middle of last year, something has changed in investor sentiment and they are now rushing for the exits pushing the price down 30% from a high of 294 SEK.
We’ve seen this pattern of course many times before, such as recently with Apple stock. A consistent uptrend, a blow off as ever increasing market expectations are not met, then a precipitous drop in price.
It is another nice example of a companies stock price going up for what it feels like forever........until it suddenly doesn’t!
The danger of course is this type of price action can prove to be an irresistible trap and inexperienced investors without proper risk management can end up holding the bag with big losses.
A quick search of the internet reveals as late as March 2012 even experts Avanza were still recommending a buy at 250SEK (to be fair though their analysis did highlight market share challenges) however by August they switched to neutral just as the stock price reached it’s peak.
So what lies in wait for Swedish Match stock? Technically there has been a recent bounce so could it flatten out here but then again this correction may not be finished and it will fall further! The dividend yield should act as a cushion preventing further big losses.
Typically in this situations investor sentiment becomes too optimistic on the upside, so I expect we will swing back too far on the pessimistic side, pushing the price too far down making it cheap. This is where the opportunity for value investors will present itself, who will come in putting a floor in the stock price.
At what price does Swedish Match become a buy? From a behavioural point of view I would ideally be looking for the 'puke point' where the weak longs throw in the towel and the chat rooms are full of bearish sentiment. We don't seem to be at that point.
At what price does Swedish Match become a buy? From a behavioural point of view I would ideally be looking for the 'puke point' where the weak longs throw in the towel and the chat rooms are full of bearish sentiment. We don't seem to be at that point.
