Nick Caporella, the CEO of National Beverage Corporation, has hit the press this week with an extremely aggressive outburst against stock speculators. Despite the fact that shares in his company National Beverage Corporation have increased by 90% this year he is complaining about a 20% drop during the month of October so far. While many of his arguments stand up fairly well to scrutiny, is he biting the hand that feeds him or simply exposing an undercurrent on worldwide stock markets which is dominated by gamblers?
Speculative movements
Many would highlight the fact that Nick Caporella was not so disparaging of stock market practices while his shares were rising 90% prior to the recent fall. Nor was he criticising analysts who highlighted a growing interest in fruit flavoured fizzy water amongst the so-called millennials. So, why has Nick Caporella chosen now to criticise stock market practices?
It is hard not to agree with some of the arguments made and the fact that gamblers often dominate short-term trading in volatile stocks. Nick Caporella believes that just 15% of daily stock trading relates to a company’s current trading with more than 50% connected with short-term “gamblers”. The term gambler is used in a derogatory fashion against those who speculate on stock markets with a short-term timescale. The fact is that traders are extremely knowledgeable, extremely nimble and do their research before investing what can be large amount of money.
On the plus side, they add much-needed liquidity to many stocks which in turn attract the attention of institutional investors who are unlikely to deal in stocks where there is limited liquidity – a chicken and the egg situation, what comes first. So, perhaps short-term speculators are not as bad as the CEO of National Beverage Corporation is suggesting?
Why have the shares fallen back?
There is no doubt that National Beverage Corporation has been trading extremely well and making full use of the growing fashion towards fruit flavoured water. However, Coca-Cola’s recent purchase of lime flavoured mineral water rival Topo Chico has in theory reduced the number of companies potentially interested in acquiring National Beverage Corporation. This in itself may well have burst the short term bubble created on the back of takeover speculation and improved trading.
While there may be some truth in criticism of short-term trading it is worth noting that of the 46 million shares outstanding company only 2.1 million shares are associated with short interest positions. This compares to daily average trading of 318,000 shares in the company – although this is not the whole story. Nick Caporella, who is said to be worth around $3.7 billion, actually owns 75% of the company’s stock. This in itself reduces natural daily liquidity and could in theory make the shares more susceptible to short-term trading. Critics of the CEO and supporters of short term trading would argue that Nick Caporella is feeding this short-term phenomenon as he already holds 75% of the 46 million shares in issue. Seems like a fair point?
Biting the hand that feeds you
Stock market investment is a very complex phenomenon with a variety of different parties playing a major role. From institutional investors to private investors, from analyst to company Chief Executive Officers, they all have a part to play. Some might suggest that Nick Caporella is biting the hand that feeds him and while his recent rant may hold some credibility, he might think twice about criticising stock market procedures in the future?