The greater fool theory is the belief that one can make money by speculating on future prices, because there will always be a “greater fool” who will be willing to pay more than what you paid, even if you paid too much.
It relies on the assumption that someone else will be left holding the bag when the price gets too high and the bubble bursts. Speculation based on a belief in the greater fool theory is a great way to make a lot of money, as long as the greater fool doesn’t turn out to be you.
According to the theory, any price, no matter how high, can be justified by a rational buyer under the belief that another party – an irrational buyer – is willing to pay an even higher price.
Those who subscribe to the greater fool theory will often make questionable investments not because they believe that the current price is attractive, but rather because they believe that they will be able to sell to someone else at an even higher price.
Well it seems that the Group CEO of Oando Plc Jubril Adewale Tinubu has just acknowledged being a bag holder or greater fool as he has just acknowledged buying at the top in his latest letter to the Nigerian Stock Exchange (NSE).
According to Tinubu: “With global upstream players forced to record significant reductions in the fair value of their asset portfolios in the last 10 months we are no exception. This led to us accepting non-cash impairments and currency devaluation charges totalling N185.3 bn.”
Out of the total impairments the upstream business (where Oando recently paid up to $1.5 billion for Conoco Phillips assets), had impairments of N130.2 billion.
For example on OML 90 which had impairment charges of N10.2 billion, the letter states:
“Recognition of an impairment loss on the OML 90 due to the declining oil prices and significant downward reserve revision as hydrocarbons were not found in commercial quantity given the prevailing market environment.”
This should be cold comfort for Oando’s equity investors who have seen shares fall 60 percent this year.
If there is surely a time for a Bill Ackman or Carl Icahn type (activist investor) figures to emerge in Nigeria, it is now.
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