Ridiculously low share price... but tempting anyway

Glen_Clark

Flock of Sheep is my favorite poster as (s)he is the most entertaining.:)
A refreshing change from those who seek to impress by claiming to have made a fortune on past deals. Completely uncheckable, anyone could say that. If you wanted to know whats done well in the past look at Warren Buffet - you know he's not a b*lshitter.
I think what we all want to know is what will do well in future, not whats done well in the past.

bowlhead99

mspoppins wrote: »

They've been around for quite a while, prospecting, digging, boring holes here are there. They're not bankrupt or anything but their share price is like half a penny and it's stayed like that for the last couple of years. I'm actually sooo tempted to buy some

One thing to be careful of is, the value of a company is price times number of shares, so you can't necessarily infer that a company is too cheap just because the price is 'like half a penny' and compare it to something like Tesco at 346p or Google at 87973 cents. They all have completely different numbers of shares in issue.

For example, I'm invested in Victoria Oil and Gas (VOG) at 1.5p, mentioned by C_Mababejive above. They have 4.35 billion shares in issue, so for their shares to be worth a pound each, the whole company would need to be valued at 4.35bn. By comparison, Domino's Pizza UK which is already a billion pound business, only have 164m shares, so for it to be valued at 4.35bn it would need to quadruple in price from its current 668p to over 26 quid.

You're right, your Canadian oiler can't keep prospecting forever but as alluded to by others, they might just place some more new shares with institutions and directors, raising more money and keeping going, while the downside for you is that every barrel of oil found, needs to be split between twice as many shares. And once they have a found the natural resources, they would need to keep drilling to establish whether its economically viable, build infrastructure etc, all of which needs a lot more cash than just doing some seismic surveys and carrying a rig around from place to place prospecting.

As far as I understand, the maths is simple. If they don't find oil, they'll soon go bust. However, if they do, the share price might sky-rocket. Any thoughts? Has anyone here bought high-risk shares?

As an example of another high risk share in my chequered history, I had MARL (exploring in southern Argentina for bonanza-grade gold and silver seams) which went as low as 2p at the market bottom in 2009. I held from 8p, and in 2010/11 I was able to sell a third of them at 35p and another third at 42p. Didn't catch the top of around 50p, and ended up dumping the last third last year at 7p. If I had kept them, today they'd be worth 2p again.

A particular problem with thinly-traded high risk shares is the buy-sell price spread, so for example if you bought MARL for 2p plus broker costs you could only sell it for 1.75p less broker costs - so if you'd only invested a couple of hundred pounds you might be out 20% instantly.

So on that basis, they're only suitable for investing larger amounts, and for a long term hold during which time you forget about them and they grow nicely... but of course if you forget about them you will likely miss the 7am news release on a random weekday morning which is a gamechanger for the company and means you should sell that morning for a 20% loss instead of later in the week for 50% plus. Exactly the opposite of the type of company you in which you should invest large amounts.

The whole of AIM is full of high risk shares and the others are right that the messageboards at ADVFN (and other places like iii.co.uk - Interactive Investor) are full of pump-and-dump merchants, rampers, de-rampers. There are some diamonds in the rough where people will actually post good analysis of broker notes, financials, AGMs and company news releases. But they are well overshadowed by people bickering like petulant teenagers, perhaps blaming their losses on the company being in league with the market-makers who are walking the price down to allow the directors to go private on the cheap, or alternatively they fully believe there's a big strategic buyer waiting in the wings to get in at the next placing to screw the private investors at which point it will rocket upwards.

And people claiming they spoke to a director the other day, who reassured them of X, but unfortunately wasn't able to give any price sensitive information, but let something slip, which made them very much more confident in their holding. Most of it is just lies, and shocking that the FCA allows it (though freedom of speech says they must) - but unfortunately reading a 2000-post thread packed with half-truths is a necessary evil if you are trying to pick up as many bits of analysis as you can about a company you want to buy into, and about which there is not a lot of public domain information.

Some of my best (and worst) investment decisions were inspired by posts on ADVFN and Fool so I can't complain really. But you should treat your investment in the canadian oiler as an investment in casino entertainment- you might lose it all, you might quadruple it or even recover 10-30x your investment, and afterwards you can have fun looking back and evaluting what you should have done differently and what factors you should have acted on to exit earlier or to top up your holding.

One question to ask yourself, before you have a punt on this particular share, is - out of all the shares on TSX, ASX, AIM etc which are bobbling along with some huge future upside and a downside of 100%: why this one. There are hundreds of choices and you don't have enough cash to invest in all. So you need to invest in the one(s) you feel provide the best risk/reward ratio.

If you don't know which one that is, keep looking, or accept it is just a gamble. At a roulette table in any major city you can put £100 on a number and 97% of the time you'll lose but sometimes you'll win £3600.

jabba42

https://www.google.co.uk/finance?client=ig&q=NYSEMKT:CXZ

I watch this one, it can be up or down 20% on any given day. If could time it right I could make a dream return in one day

update, just read the blurb to the side
http://www.4-traders.com/CROSSHAIR-ENERGY-CORP-1409673/news/Crosshair-Energy-Corp-Crosshair-Provides-Corporate-Update-17011284/

A good example of what can happen, they can go to zero.

jabba42

Glen_Clark wrote: »

Flock of Sheep is my favorite poster as (s)he is the most entertaining.:)
A refreshing change from those who seek to impress by claiming to have made a fortune on past deals. Completely uncheckable, anyone could say that. If you wanted to know whats done well in the past look at Warren Buffet - you know he's not a b*lshitter.
I think what we all want to know is what will do well in future, not whats done well in the past.

http://warrenbuffettstockportfolio.com/

42 stocks in his WB current Portfolio.

Glen_Clark

jabba42 wrote: »

http://warrenbuffettstockportfolio.com/

42 stocks in his WB current Portfolio.

You really need to know what he paid for them, but interesting link nevertheless, Thank You.