Last week the Daily Mail's stock market reporter, Geoff Foster, recently posed the following question: "Cancer cell company Angle soared 16.75p to 94p after chief executive Andrew Newland transferred 69,204 shares to his personal pension fund at 72.25p a share and he retains a 19.65% stake. What does that tell you?"
I'll field that one: it tells you almost nothing.
The fact that Andrew Newland has chosen to transfer some shares from one account to another and retains a 19.65% stake in the business tells us nothing of any significance, and certainly does not account for Friday's 23% jump in the share price.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Last week I described in simple terms why a new product from Angle's Parsortix subsidiary could help in the fight against cancer. And the fact is that Parsortix looks a great stock.
But after reading the Daily Mail article, I wondered how any private investor who follows the mainstream press can hope to pick up on great companies like this. And that raises an even bigger question.
Are private investors destined to lose money?
The more I observe the habits of the typical private investor the more I am convinced that he is destined to lose money. Prodded by an endless supply of business news, he finds it difficult to simply hold on to positions. How many, I wonder, sold out before last week's Euro-rescue inspired rally, and now bitterly regret it? And he is not helped by the quality of the tittle-tattle that fills the stock market pages of the daily newspapers. Most of that is planted by PR men.
If you want to make real money on the stock market, you need to do the research. You need to trawl annual reports and corporate websites. You need to gather up as much background information as you can find. You need to talk to people in the company and in the industry. To do this properly takes days, and even then many investors are unable to draw the right conclusion. Having established what a business actually consists of, he then has to accurately value it.
This isn't easy. The research work takes a bit of effort, and valuing shares is far from an exact science. You need to understand things like P/E ratios, dividend yields, debt/equity ratios, and free cash flow. And even if you get all of that right, your calculations might be overtaken by that great imponderable, market sentiment. But if you are really going to succeed at investment you need to get your head around plenty of information and some essential valuation methodologies.
Let me do the hard yards for you
The alternative, of course, is to let me do it for you. I don't pretend to get everything right, but I do put in the 'hard yards.' The last time I was in the assembled company of the UK's small company journalists they were guzzling as much wine as they could get their hands on. I think I was the only one in the room drinking water. I am pretty dull, I know. I hate parties and I don't like staying up late. While the others were nursing their Sunday morning hangovers I was doing my research.
I do it because I am passionate about investment. I do it because I want to understand what these small companies are really about. I do it because I want to make some money without getting my hands dirty. And I do it because I reckon my readers deserve something better than a bit of lazy Friday afternoon journalism that takes two unrelated events and draws a totally erroneous association between them.
If you really want to know what is going on in the world of penny shares, you need to read Penny Sleuth and Red Hot Penny Shares. You see I may be dull but I am not modest!
This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.
Red Hot Penny Shares is a regulated product issued by MoneyWeek Ltd. Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Penny shares can be volatile, relatively illiquid and hard to trade. There can be a large bid/offer spread so if you need to sell soon after you've bought, you might get less back than you paid. This can make them riskier than other investments. Please seek advice if necessary. 0207 633 3780.
-
Which UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
-
Somero: trading this overlooked bargainFeatures Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
-
How to find big profits in small companiesCover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
-
Fetch! The Chinese small-cap stocks to buy in the Year of the DogOpinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
-
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
-
Get cheap, reliable growth from smaller companiesFeatures One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
-
Now the bitcoin bubble’s burst, what’s the next big thing?Features Forget bitcoin, if you want to increase your wealth faster than most other people, you need to find the next big thing. Merryn Somerset Webb suggests some places to look.
-
A one-stop shop for global small capsFeatures Setting up global smaller-companies funds is a tall order. Max King tips two that have managed to pull it off.
-
Three solid Aim stocks to buy nowFeatures Many Aim-listed stocks if held for two years, are exempt from inheritance tax. Here, professional investor James Rae picks three Aim stocks to buy now.
