Investing in penny shares-00-3610

Buying and selling

Over the last few months, we have witnessed a meaningful recovery in the AIM Index as private investor capital returned in some force. Whilst a lot of people are still waiting on the sidelines for economic figures to justify a return, there have been plenty making a leap of faith and getting into amplified risk/reward situations once more. However, some flurries of buying have been short-lived, with many a share graph spiked by this momentary euphoria. Warren Buffet once said the stock market is a mechanism for the “transfer of wealth from the impatient to the patient” and it’s hard to counter that statement. For the opportunist that did buy low and sold high, though, repeat performances will be sought, meaning the hardest hit shares systematically become targets. Of course, for those fortunate to sell at the top, there are buyers who took them out, possibly attracted by a sharply-rising share price. So, if price appreciation served as the attractant, what comfort can be drawn by those later buyers if the shares go into reverse?

DYOR – do your own research

It is surprising where many speculators in small AIM companies go to learn about them and a large number of private investors now post on, read and react to a burgeoning array of threads on online investment forums. Created in the name of sharing opinions and information, it is debatable how many people actually make the effort of checking what they read is true. It is staggering how many comments are taken as gospel by the next person, who doesn’t know the author from Adam.

The premise of an online forum is noble – empowering the average person in the street to pick-up on ‘City’ rumours and, perhaps, have a more learned individual interpret technical announcements to deliver them in layman’s terms. However, the human traits of fear and greed mean that honesty isn’t necessarily a policy practiced by the whole community. The dynamics of ‘Penny Shares’ make less-sophisticated investors easy targets for so-called ‘rampers’ and their comically-titled opposites, the ‘de-rampers’, who tell tall tales not for the greater good, but to satisfy their own trading position. In fact, the term ‘de-ramper’ sums-up the mindset of some on these sites; the irony is clearly lost that a disparaging tag exists for a person who tries to counter those ’stretching the truth’ in an effort to get shares to go up! Of course, both camps are careful to slip the acronym ‘DYOR’ to the bottom of each post and at least no-one should argue with its connotation. Do Your Own Research is a stock market tenet that every investor should abide by and it is easier than some may think.

AIM Rule 26

The move to Nominee accounts after the launch of the Crest electronic share registration system, left many traditional ‘paper’ investors bereft of annual reports and voting forms. As AIM tightened its admission rules and European legislation came in to harmonise corporate documentation, moves were made to revolutionise the availability of information. A result of this, AIM Rule 26, is one of the most important developments to hit our screens and something every shareholder in an AIM-listed company should not only be aware of, but use to their advantage.

Although there is a massive difference in the quantity and quality of information available, these websites all have one obligation in common: an ‘Investors’ section full of statutory information including the AIM Admission document, chronological full and interim reports and other shareholder circulars. Because it is easy to amass stacks of such paper documentation, it is a convenient alternative to have instant access to the same online.

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