Speculative investing

[Itsallaguess]

Then the GFC came, the price went down to $17 a share, the crowd that haven't got a clue what that company does all pat each other on the back . Look, we didn't buy them, we are clever.

How they didn't notice that their well diversified index fund crashed by 50% is beyond me. Why they still deny it is beyond me.

Their well diversified fund has done nothing virtually for the last 12 years.

Here's a Yahoo Finance chart (https://tinyurl.com/y6mngmf9) for the FTSE100 between April 2005 and 26th April 2019 -



The above chart shows that in November 2007, the FTSE 100 was at a level of 6721, and it dropped to a low of 3830 in February 2009, which is actually only a drop of 43%....

The November 2007 level of 6721 was reached again in November 2013, so only six years passed between the pre-GFC level and the FTSE100 regaining that lost ground.

Even then, that doesn't tell the whole story, because even during those turbulent years, the FTSE100 continued to pump out dividend returns, as we can see in the chart below (source - https://tinyurl.com/yys934jh) -



Looking at the above chart, we can see that the dividend-yield of the FTSE100 during the turbulent post-GFC period never dropped below 3%, and often sat happily above it....

Of course, in addition to the above, many investors will have continued to drip-feed their investments over the period where prices were lower. Such investments will have made significant gains since that time, as we can see from the above chart.

Your view that well-diversified index-funds have done virtually nothing for the last 12 years doesn't seem to reflect the reality of the above situation.

Perhaps you're thinking of a different well-diversified index-fund, in which case it would be interesting to hear which one(s) you think have done poorly, both during and since the GFC....

Cheers,

Itsallaguess

[JoyofBrex8889]

There are good companies on AIM, and some dreadful companies on AIM. I have a hard rule not to invest in any overseas companies on AIM, too many disappoint.

I don’t think I would be happy these days to just take a punt on a share without reading the last few ARs, checking very closely the accounts and making an effort to understand roughly who else is involved, directors and major shareholders. AIM shares are somewhat prone to running out of cash or delisting.

I have probably made every schoolboy mistake in the book over the last several years, but have ended up with a decent return in large part because my position sizes for speculative stuff have been tiny compared to the shares I properly did due diligence on.

[hiriskpaul]

Hi folks,
More of a hello than any specfic question, I found the site after a google mistake searching for the motley groan.

Recently started investing (gambling) in a few smaller Aim listed companies I like the sound of, bit more fun than the usual invest in a Vanguard Index you hear from everyone else.

Anyone ever had any decent wins or losses with speculative stocks? and care to share the stories/advice?

ta

The advice I would give is, as far as possible, to be an intelligent speculator, rather than a dumb one. What I mean here by intelligent, is drilling into the company so you know precisely what the speculative areas are, rather than hoping to make a gain through pure dumb luck. Why be an intelligent speculator, it sounds like an awful lot of effort? There is more than one reason, but for me the biggest is that the "System" is rigged against those seeking to make a return by pure dumb luck (a better return than the market). If you are not prepared to put the effort in, you are likely to do far better over the long term by simply buying the market, even if you do get lucky in the short term.

My speculative investments these days are in fixed income. For example, I hold Enquest debt. The company is sound from an assets point of view, but carries a lot of debt. The speculation is that the oil price will stay sufficiently high in order for Enquest to continue to service the debt and ultimately pay me back 100% of principal in a few years time. That is not to say that the oil price is the only risk, a major oil spill could wipe them out for example, but the specific speculation I am making is on the price of oil.

If you have not read it, get Ben Graham's The Intelligent Investor. The first chapter is all about the difference between speculation and investment, and how the 2 are intertwined and often confused.

Examples of pure dumb luck investing/speculating I have made from my early days are in Acorn Computers and Borland. At the time I thought they had good products and would do well. That just about sums up the limit of my understanding of the companies and what was likely to happen in the future. Not once did I properly consider what was happening in their markets, what their competitors were doing, the soundness of their balance sheets etc. Acorn failed in its primary mission to keep developing and selling personal computers, but spun out ARM, which did extremely well. I made a large gain, but it really was by pure dumb luck. Their ARM processor had not been invented when I invested.

Borland had great products, but my naivety was in believing that was all that mattered. Microsoft killed them in the Office market by better marketing and their excellent software development tools could not compete with the freeware/open source movement. I pretty much lost my entire investment.

In both cases, I was not really investing, even though I thought I was, but mindlessly speculating.

[Archtronics]

So to update bids has announced they are issuing more shares on the 14th of May.

Bit of a newbie question but if I wanted more do I just buy as before or will I be offered them as an existing shareholder?

[Urbandreamer]

So to update bids has announced they are issuing more shares on the 14th of May.

Bit of a newbie question but if I wanted more do I just buy as before or will I be offered them as an existing shareholder?

It's a bit of a dificult question.

Companies issue additional shares by placement, open offer, or rights issue.

The first sells shares to an institution. If you want more then you'll just have to buy more on the open market.

In the second and thired you recieve a comunication from your broker letting you know that you are being given the option to buy more shares at a reduced price. The difference between an open offer and rights issue is that you can sell the "right" to purchase the shares at the reduced price in the case of a rights issue.

[Alaric]

Your view that well-diversified index-funds have done virtually nothing for the last 12 years doesn't seem to reflect the reality of the above situation.

On a longer view, the FTSE 100 Index almost reached 7000 in December 1999. It only got past that value again relatively recently. Including dividends, what does the total return on the FTSE 100 look like over the last 20 years?