Jan 15, 2013

Get Fact: what was the Whitehaven hoax really worth?

The claims that Whitehaven investors lost $300 million because of the ANZ press release hoax is rubbish. The figure is closer to $300,000, says Dr Alison Parkes from the University of Melbourne's Department of Accounting.

The mainstream media reported share market losses due to the Whitehaven hoax as being in the the vicinity of $300 million. But what does this extraordinarily large number represent and does it validly depict losses on the day? Post-hoax, actions were described by the media as a drop in market capitalisation of $300 million. What's not explained is market capitalisation is calculated by multiplying the share price by the total number of shares issued, to determine the market value of a company. So this $300 million "loss" was calculated by comparing the value of 100% of the shares at the lowest point on the day with the value of 100% of the shares at the highest point on the day. It's not real money, folks. Nothing like 100% of the shares changed hands on that day. A more accurate number can be calculated by multiplying the volume of shares sold at various discounted price levels on the day. But before we get there you need to remember that for every "loser" there is a corresponding "winner". For every person or institution who sold a share cheaply based on erroneous data, someone else got a good buy based on their willingness to take a risk. This is the way the share market works. Any share transaction needs a buyer and a seller who can agree on a price. That price must represent a potential profit opportunity to both of them in order for them to agree to the transaction. The fundamental truth of the duality of the market seems to have been overlooked in the media coverage. So what was the value of shares sold on the day? To calculate this I used freely available trading data from ASX online. There were two major drops recorded in the Whitehaven share price on Monday, January 7.
  1. By 11am the share price had dropped from $3.51 to $3.31 on a volume of 1,172,800 -- representing an actual drop of $234,560 (1,172,800 x $0.20).
  2. After a slight rally up to $3.38 by 12.30pm, the shares then dropped to a low of $3.27 at 12.40pm. The volume of trade here was 749,700, so in dollar terms equal to $82,467 (749,700 x $0.11). By 2pm that day the shares had climbed back to $3.52, which was just above their starting point for the day.
So on total losses (or total gains depending on your negativity disposition), the worst case scenario was around $320,000. This is a lot less than the $300,000,000 reported in the mainstream press, but of course it doesn't make such an interesting story. That figure is rubbish. A final useful -- and unreported -- fact is the value of Whitehaven shares have dropped by 37% all on their own over the past 12 months, so a 9% dip for part of a day is really a flea bite compared to their overall trajectory. Maybe shareholders who ditched their Whitehaven shares have done themselves and their investment portfolios a favour after all.

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9 thoughts on “Get Fact: what was the Whitehaven hoax really worth?

  1. klewso

    How do they get these jobs as finance reporters?
    Get promoted for real good work in the horoscope section?

  2. Mark Edmonds

    Also, it is not possible to know how much the people who sold their shares during this dip actually paid for their shares in the first place. Presumably, it is possible that those who sold had benefited from share issues, bought cheap, or so forth. As such, they may not have lost money so much as lost the opportunity to sell at a greater profit, had they hung on until after the recovery. Another reason why the 300M is bollocks, and the 320K would be worst case!

  3. Andybob

    Good point and thankyou for making it. Only those who sold suffered a loss; after disclosure of the hoax the price recovered to a level broadly consistent with the long term trend. I doubt that those who lost would be cheered up by the fact that others profited; that argument spoils your better point.

  4. Mark Duffett

    Good to see a less ambiguous Fib-O-Matic.

  5. Microseris

    Thought Jimmy was going to have an aneurysm after Crikey’s previous story suggested $300M.

    No surprise then he doesn’t have 20 posts on this analysis.

  6. zut alors

    ‘It’s not real money, folks.’

    Exactly. This incident raises the question whether the MSM could even report a game of Monopoly accurately.

  7. Mark Duffett

    I’d still like to see Crikey run the Fib-O-Matic over the not entirely unrelated claim (by Crikey and The Global Mail, amongst others) that the people of NSW are net worse off as a direct result of the Obeid coal exploration licence scandal:

  8. [email protected]

    Brilliant article Alison exposing some terribly lazy reporting by the MSM.

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