Call me a nerd. But I must admit there’s nothing like a good sift through the dictionary to fire up the brain.
That might sound a little weird. But sometimes it’s good to get clarification of something important. Like resources. You know what resources are; gold, iron ore, coal, copper, gas, these are a few examples.
But do you really know what a resource is?
I ‘knew’ too. But I decided the other day to double check. Just for my own clarification. And while it didn’t open any Pandora’s box, it did make me realise there’s far more to resources than you might think.
Stock and supply create a market
The Google search for ‘what is a resource’ brings up a lot of information.
For example, the definition of a resource is, ‘a stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organisation in order to function effectively.’
There are some critical words in there. Such as ‘Stock and supply’. That’s the first thing that jumps off the page at me.
It’s this stock and supply that’s incredibly relevant to three particular ASX stocks that my colleague Jason Stevenson has uncovered. These resource plays aren’t like any other on earth. They’re about to cash in on an opportunity that could see them return 100x your investment in a matter of months.
Jason’s has been working in ‘stealth mode’ on this research for months. And he’s only now confident the market is ripe to release these ‘Gigastocks’ into the wild. It’s incredible research, which you would be crazy not to take a look at.
The resource opportunities Jason has found are ones that ‘dig up dirt’ (valuable dirt I might add). These are more ‘traditional’ resources. But looking again at the definition of ‘resource’ there’s something else that catches my interest.
It’s the reference to ‘other assets’. We often think of resources companies as the ‘dirt diggers’. But the reality is resource companies can be anything that uses an asset to ‘function effectively’.
It’s also the stock and supply of these ‘other assets’ that creates a market. Or in some cases destroys a market.
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The resource of taxi licences
At the local supermarket on Monday I saw a headline in the Express & Star that read, ‘Taxi Drivers In Standstill Threat.’ I did a double take because the very same day in Melbourne were headlines that read,
Melbourne taxi drivers protest as cabbies face financial ruin
Melbourne taxi protest causes chaos
Sky News Australia
Melbourne taxi protest against Uber changes causes traffic chaos
Opposite ends of the world, suffering the same problem on the same day. That’s worth a double take. Distance may separate the taxi industry in the Midlands in the UK from Metropolitan Melbourne. But they both share a common threat.
You know what Uber is. You know the service they offer. And you know that they’re forcing the taxi industry into major overhaul. In Melbourne it’s caused the state government to compulsorily acquire taxi licences from the incumbent taxi operators.
And the industry is in uproar.
Let me be clear on something. I despise the taxi industry in Melbourne. In the 30 years of living there, not once did I have a good experience with Melbourne’s cabs. Until Uber came along. Then it changed. It changed because Uber had a better, safer, more reliable service. It turned the industry on its head. It continues to turn the industry on its head.
This kind of competition is outstanding. It’s natural selection of the corporate world. Adapt and survive, or become extinct. That’s capitalism working at its finest.
If left to their own devices the industry would naturally change for the better. Instead the government has stuck their nose in where it doesn’t belong. And they’ve once again stuffed things up.
The incumbent taxi operators all held licences to operate cabs. In most instances they paid a lot of money for these licences. Back around 2010/11 perpetual taxi licence holders were paying around $500,000 for a single licence. Even in September 2015 a taxi licence transfer price was around the $260,000 mark. But looking at the chart below, the value of those licences has been in freefall.
Source: Taxi Services Commission
Click to enlarge
You know what that chart looks like? It looks like the chart you’d see for a resource like gold, iron ore or copper. That’s because a taxi licence isn’t that different to your ‘traditional’ resources. In fact a taxi licence is a resource — and as you can clearly see, the tumbling prices are killing the industry.
But is that a bad thing?
In short, yes. I’m highly critical of the incumbents. But the government decision to acquire their licences is authoritarian government at its finest. And it’s not on.
The government wants to compulsorily acquire existing taxi licences. They’re willing to pay $100,000, plus $50,000 for each additional licence held. And the funds for that are coming from…you.
Paying for a worthless resource
When you take a ride in a cab or an Uber you’ll pay a $2 surcharge. Sorry, a $2 tax. That money will go to buying back the licences from the incumbents. Congratulations, you are buying a worthless resource from an industry that’s on its knees.
Imagine if the government forced you to spend money buying up silver while the silver price was tanking. Or imagine the government forcing you to sell them your home because they want to build a new rail tunnel that no one wants (oh, sorry, they are doing that).
Any forced action or tax to support a failing market is inexcusable. It’s the government again showing how incompetent they are at managing an economy.
The government has no business in this industry. This resource of taxi licences is a market, where supply and demand sort out the price.
The government thinks it’s helping cabbies. The cabbies think they’re getting screwed. The real outcome is you get screwed. You end up with blockades, protests, horrible services, and in the end, an Uber-dominated city anyway.
Even if the incumbents fail, it will be through their own doing. They will rue the day they had a chance to cash in $100,000 and didn’t, when a licence is worth $10. But that’s how markets work. That’s natural selection.
However, what could be even worse is an Uber monopoly. No monopoly has ever been good for society. But it can be incredible for investors (while Uber is yet to go public, I’d watch this space).
The market needs companies and competition like Lyft, BlaBlaCar, Uber and yes, even yellow cabs.
Competition is vital for a thriving market — the government sticking their nose in is not.