Celticheart Investor
A beginner's guide to trading and investing
Regardless of what happens to a company's fortunes the one overriding factor that can make the difference between success and failure appears to be market sentiment. Simply put whether or not the company is in favour or not, irrespective of anything else.
Sometimes it is staggering how illogical that sentiment can be and how dramatically it can affect the wellbeing of the company and its share price.
I have been invested in a number of companies over the years where the fundamentals have been sound but, for some reason or other, the company has just fallen out of favour with shareholders and the market in general.
Conversely, other companies have done remarkably well despite having little of value to offer in tangible terms but shareholders have been drawn in by "the story" and become somehow convince that this is "the next big thing" despite little to prove that that might actually be the case in reality.
They say never get emotionally attached to a share but all but the most hardened traders do from time to time, I myself have been guilty of doing just that on occasion. Sometimes it can pay off to believe in a company, particularly when there are so many detractors trying to persuade you to sell.
Make no mistake though, do your research and only continue that belief if you feel that the underlying strength of the company is worth investing in. A case in point is Range Resources ltd (RRL), the dual listed (ASX/AIM) company.
We have seen this company drop from highs of the mid 20's to around 0.6p in a matter of a couple of years despite having good assets and massive potential.
Much has been written about why the fall, some of it factual but much of it based on wildly unsubstantiated conspiracy theories too. There were many complex issues, the history of which can be viewed on the company's website http://www.rangeresources.com.au and it is clear that there were some poor management decisions made but the overriding factor that allowed traders and shorters to bring this company to its knees was the loss of shareholder confidence and the lack of any positive market sentiment.
Shareholders and the market in general simply stopped believing in the story. As a long term investor I am delighted to say that with a new and focused management team and funding greatly improved sentiment is once again turning positive. That sentiment is now also being reflected by well respected bloggers like Malcolm Graham-Wood (Malcy) which will in turn further support that return to a positive view on the company's future.
I don't usually focus on specific companies as those that read my blogs regularly will attest to but in this case it illustrates perfectly the point of this topic, why market sentiment is so important to a company's prospects.
There is a long way to go with Range Resources but hopefully now that a corner has been turned positive market sentiment will return, bringing with it that elusive 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.
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.
