The campaign against short selling

Celticheart Investor

A beginner's guide to trading and investing

It has been a while since I wrote my last blog because, to be honest I have become quite disillusioned with the way in which the markets, particularly those affecting small cap investments, have been blatantly manipulated over recent months. Something that I have already covered in a previous blog "Market Manipulation".

The reason that I have returned to this topic is that it seems that investors, the FCA and even the government are finally waking up to just how damaging some of these practices are, to companies, private investors and ultimately to the markets themselves.

The area that I would like to draw particular attention to today is the growing campaign against the increasingly common practice of "shorting" or "short selling" a stock or equity. Although this practices is currently not illegal it is borderline immoral in my opinion and certainly a questionable practice.

To take shorting first, this is the practice of selling a stock or equity that you do not actually own at as high a price as you can and then systematically set about trying to get that price down so that you can buy sufficient stock to cover your position at a much lower price. In any other walk of life, selling something you do not own would be sen as fraud but somehow it is an acceptable practice in the shady world of trading.

This practice has become endemic in small cap markets such as AIM and it is estimated that up to 90% of small cap companies are affected this practice but what has made this far worse is that organised groups are now targeting vulnerable companies with co-ordinated "shorting" raids.

The prevalence of bulletin boards, social media and Tweeting to discuss the merits and performance of small cap shares has made it far easier for organised groups to influence and in some cases blatantly drive down the value of a share. Unfortunately many small investors pay far too much heed to these "de-rampers" and will often take what they are being told at face value and sell, often far too low.

The tactic is to exaggerate any negatives and discredit any positives, attacking anyone that opposes their view in a manner that can only be described as "cyber bullying". Some have even taken to verbally attacking the CEO or members of the board of directors.

The problem has become so severe that there have been occasions where companies have actually taking legal action against individual posters and organised groups. Libel is of course a crime in itself but tracing individuals who hide behind the mask of an online persona takes time, by which time the damage has already been done. Often these organised groups are employing posters in what are called "boiler rooms" where they spend all day on social media and bulletin boards verbally attacking a targeted share.

So what can you do to fight this practice?

Well for a start you can add your name to a growing list of small investors who have become sick and tired of seeing the market and their shareholder value being eroded by signing a petition to get shorting made illegal, particularly on small cap markets such as AIM 

http://epetitions.direct.gov.uk/search?q=make+shorting+illegal

You can also add your weight to the argument by reporting any incident that you feel what you feel is unacceptable market manipulation to the FCA

http://www.fca.org.uk/firms/markets/market-abuse


Don't let these unscrupulous people destroy your investments for their personal gain, they do not care about you or your hard earned money. Sometimes these people can be very convincing but make no mistake they have an agenda and the last thing they care about is your shareholder value.




A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Markets and Indices

Celticheart Investor

A beginner's guide to trading and investing

When it comes to investing one of the most important considerations is which markets do you invest in. By that I mean do you invest in the main stock markets such as the Footsie which tend to be better regulated and more stable or do you invest in one of the smaller markets such as AIM http://www.londonstockexchange.com/companies-and-advisors/aim/aim/aim.htm which is made up of smaller cap companies and is without doubt a more volatile market? Ultimately it comes down to your approach to investment and risk.  

AIM is, at least according to their website, the most successful growth market 
in the world. Since its launch in 1995, over 3,000 companies from around the world have chosen to join AIM. 

There are of course many indices in the UK stock markets: 

• FTSE 100
• FTSE 250
• FTSE 350
• FTSE All-Share
• FTSE AIM All-Share
• FTSE techMARK All-Share
• FTSE SmallCap
• FTSE Eurotop 300
• Ethical Indices

The main markets are more stable with generally a far higher share price, particularly in the Footsie 100, the growth rate might not be spectacular but the risk is generally far less (although nothing is certain in today's market) and you are far more likely to get a dividend paid on your investment.

The added advantage of investing in the main markets is that they are ISA allowable, whereas previously AIM stocks have not been although looks like it is about to change as is explained below: 

During the recent budget announcement, George Osborne announced that from April 14th next year no stamp duty will be payable for shares that are listed on AIM and other so called "growth" markets (currently 0.5% duty on all markets). He also said that he was in consultation over the allowance of AIM shares into stocks and shares ISA, this has now been approved and will become allowable from 5th August this year.

Until now the only AIM stocks that were allowable were those that were dual listed e.g. listed on both AIM and ASX http://www.asx.com.au/ or AIM and ISE http://www.ise.ie/

It is also worth bearing in mind that these share are not subject to inheritance tax, provided they have been held for at least two years.

I am restricting my market listing to those in the UK as, for most small investors in this country that is where they choose to invest, even though the companies they invest in can also be listed on other global markets.

One thing I have noticed is that investors who frequently monitor their holdings rarely seem to look at the overall performance of their Indices. This year I think it is fair to say that the smaller markets have taken a real hammering and have been seen as very Bearish but recently all of the UK Indices Ichimoku Trader on http://www.ichimokutrader.com/ seem to be indicating a Bullish trend or Bull run is imminent. I sincerely hope that they are right.

Footsie 100 (Chart courtesy of amCharts.com)

AIM (Chart courtesy of amCharts.com) 

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Who do you believe

Celticheart Investor

A beginner's guide to trading and investing

So who do you listen to when making decisions about where to invest your money? Not an easy question to answer I'm afraid as there are so many sources for information out there but I will try and give you a few useful tips. I spent a lot of time listening and learning to more experienced investors before I even contemplated investing my hard earned money in shares.

Firstly, you should be aware that shares are held in various markets around the world but investing in other markets than the UK brings a whole other range of issues so for now I will restrict my postings to activities on UK markets. It is important to note that not all companies have a large enough market capital to list on the London Stock Exchange (LSE), many smaller companies are listed on what is known as the Alternative Investment Market
(AIM). There are however crossovers, companies with a comparatively small market capital that are listed on the LSE.

You don't have to make your own decisions as to which companies you invest in of course, there are many fund managers out there in the various market sectors that will invest for you with varying degrees of risk and return. For some this is the preferred choice as they do not have the time or inclination to research the companies they invest in thoroughly enough. You would be amazed how many small investors do little or no research into the companies they invest in but I will come back to that.

Assuming that, like me, you want to take control of your own destiny and pick those companies for yourself, where do you start to look? Well the obvious place to start is 
in the financial pages of the daily and weekly newspapers, it is where I looked at the beginning. There is a problem with this strategy though, any news or tips that appear in the papers is already public knowledge and as such has generally already been factored into the share price.

In reality what happens is this, a company will be tipped in one of the papers, let's say 
for example at the weekend. Monday morning a lot of people will rush to buy those shares, often at over inflated prices when the market first opens. Predictably, the smart money and the people in the know already bought those shares before the weekend.

My advice would be never to buy a share on the open market first thing unless you have instructed your broker to buy at a fixed price that you believe is reasonable. There are exceptions of course, you might pay a little too much for the share but still make a profit.
These kind of sharp rises in share price, referred to as spikes, are often short lived,
great for the short term trader who wants to make a quick profit and sell again before the inevitable retrace but not so good for the long term investor.

You have to decide on a stragy and stick to it, do you want to be a short to mid term trader or a mid to long term investor. For me the strategy that works best is to do both. Have some shares in your portfolio that you are happy to leave there for a couple of years in the knowledge that they have sound fundamentals and that they will make you a profit
in the long term but also have some smaller "plays" that you can trade on those spikes.

The latter is of course a much riskier prospect but the rewards can be spectacular, just how much of your portfolio you want to risk in this way is your decision but I would advise that you limit it to say 20% of your overall portfolio initially.

So where else can you get information on these companies if not from the press, well you are spoilt for choice with today's internet access. I will list a few options for you but the range of information out there is almost limitless. Now available on Kindle and Kindle Apps for PC.

• The company's official website
• Discussion or Bulletin Boards (just don't believe everything you read)
• On line newspapers from the locality of interest e.g. African local news
• Specialist trade publications dedicated to the industry in question
• Your broker will have research material available (possibly at a fee)
• Daily and weekly newspapers (as previously mentioned)
• TV financial channels

Next time:  How do I choose the market sector I want to invest in

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.