Thursday 26 June 2014

Union Jack Oil - A brief look.

Good afternoon.


Today I'm going to have a brief look at Union Jack Oil (UJO) an AIM listed company that has become popular recently among bulletin board traders. 



To cut to the chase, Union Jack Oil are expected to announce the results of their "Wressle-1 conventional exploration well - PED180." in July following groundwork completion and the mobilisation of rigs.



For those of you who don't know, The Wressle Prospect is located on the margin of the Humber Basin (close to the currently producing Crosby Warren oil field and the Brigg-1 oil discovery).



"The gross mean Prospective Resource volumes at Wressle, as calculated by independent consultants, Molten Limited ("Molten"), are estimated to be 2.13 million barrels of oil."



Now, let's have a look at some numbers produced by the independent consultants:



What does this mean?



Well, if the consultants are correct (and they probably will be pretty close) this could translate into a petty hefty discovery! Let us use a very crude and grotesque fifty percent discount to account for costs, (even though in reality there will probably be farm-outs for a percentage of the resource), this could be a resource currently worth $112,890,000 or about £66,405,882. Rather bizarrely this method of value calculation is often about about right (yes, even though it doesn't account for discounted value projections, inflation, costing changes, etc). 



Even if we take this horribly basic method of resource valuation as vaguely accurate, we can see that against the current market capitalisation of the company (£2.93m - accounting for the last placing to institutions), Union Jack Oil could well see an astronomical rise in its share price. 



I shall therefore be buying shares prior to July while the market is a bit quieter.



Good luck traders and do your own due diligence,


The Masked AIM Trader.


Wednesday 25 June 2014

CloudTag Inc - More than meets the eye?

Good morning.

As promised here's a further update to my original CloudTag post with some juicy details:






A few days ago, we heard of the possibility of some kind of deal that has happened between Motorola Mobility and CloudTag. While many are skeptical, the evidence seems to be mounting.



Most analysts believe that Google hope to capitalise on the growing fitness industry, and as such are trialing some new technology through use of the latest device in their sphere of influence, the Moto 360.



Where did these rumors appear from? About a week ago, these patent images were supposedly leaked from a private email:
Large Diagram.jpg
Small Diagram.tiff


Watch with labels.jpg

Starting from top working down, here’s what we reckon these are:

- A diagram of how the automated monitors could work.

- A circuit diagram for a Electrocardiograph (Heart Rate Monitor).

- A general overview of visible watch features.


Circular AMOLED screen? EM charging surface? Looks hopeful.



The few analysts I've talked to believe that these images are genuine. They all add up to what we already know or suspect:


- Google wants to diversify into wider technology sectors, and could using the satellite company Motorola Mobility to test out technology.


- The only company we could find that has this level of clinical grade ability, but with retail market intentions is CloudTag Inc.


- CloudTag Inc themselves have been expanding into the mobile industry with their iPhone App MyCloudTag. This could perhaps be a two way deal, Motorola gets to use their software, Motorola endorses an updated version of this app for Android (which we already know they’re developing from CloudTag’s FAQ) to present the collected health stats in a useful manner.



However, even with all of this laid out, there are still a number of unanswered questions. For instance, why would google not output the technology themselves if they’re so hopeful?



We think the answer to this lies in two areas. Firstly google has set out a reputation of high quality with their top of the range products, including the Nexus Smartphones/Tablets, and their chromebooks, most notable the very high spec Chromebook Pixel. By slightly distancing themselves from the product they hope to escape any harsh reviews due to possible product flops while still being able to collect valuable information. The Smartwatch arena being so new, Google likely want to know everything they need to before entering personally.



Secondly, I have two hypotheses for the ownership of the technology and how this could effect a deal between CloudTag and Motorola. Back in 2010, when Google bought Motorola Mobility for $40 a share ($12.3B) they bought something most bloggers forget. The Patents. Should Google own this technology, it could well be on trial loan to Motorola. If the technology works well, Google may well buy out CloudTag for all the technologies they have and as such have complete control over the field of clinical grade health monitoring in mobile devices. Even if this isn’t the case, with the huge predicted sales of the Moto 360, a bond between CloudTag and Motorola could lead to two very prosperous companies, and possible a buyout by Motorola to have complete control over the technology.



So… What have we come to?



Although I have no conclusive proof (an RNS) I am almost certain that there has been a deal between CloudTag Inc and Motorola Mobility. This could lead to huge growth in CloudTag, and/or a buyout. I personally think I would be missing out on a great opportunity not to have shares in CloudTag, and these rumors have made me really want one of these Smart Watches.


Please do your own due diligence on this one,

The Masked AIM Trader.

Monday 23 June 2014

CloudTag Inc - an exciting underdog!

Real time health stats, at the click of a button. The growing market of health monitoring technologies has been taking on the everyday man since some bright spark attached a heart rate monitor to a treadmill, myself and colleagues now believe that this is a market soon to explode.


Not long ago, in May, Samsung laid out their vision for the future of wearables; a scenario where our wearables collect our health data and lay them out to us in some useful manner via a mix of alerts, graphs and smartphone apps. With this vision, they also brought us a new prototype smartwatch. The Simband… (See photo above)


However, this isn’t ground breaking. Samsung has already released their underwhelming Gear Fit, with its ‘Personalised Fitness Manager’.


There were two main problems with the Gear Fit. The first was that it was locked to only connect with other Samsung products. This left the product as a super niche, satisfying only those who both had a flagship Samsung smartphone, and who felt they needed the poverty spec of Samsung smart watches. If you further this out to practical terms, almost no one has one of these, so the product didn’t spread to a wider market.


Secondly, it simply wasn’t very good. Having used it, I can safely say that the health tracking capabilities of the Gear Fit were that of a pound store pedometer, hot glued to what could have been a random number generator in place of a heart rate monitor.


So, a good idea that fizzled and died, it would seem. Maybe not…


Anyone interested in the tech sector products will have heard of the two new boys on the block: The Moto 360, and the LG G Watch. Now, these two unreleased bad boys caught my eye somewhat, they looked to me, like they could actually be worth buying..!


The sleek aluminium design of Motorolas new toy combined with the jaw dropping circular AMOLED screen are what catches the eye of the viewer gazing upon the Moto 360, while the subtly rounded square face of the beautifully crafted G Watch awaits the LG onlooker.


So, what’s special about these two? Well, they haven’t fallen to the hurdle of availability as Samsung so poorly did. Both running adapted versions of Google’s new Android Wear, they will be able to seamlessly connect to any phone running 4.3 or above. Although unfortunately, Apple lovers will, for now, have to wait for their rumored iWatch. (IOS Support is expected to be developed but will not be available for release.)


Both these watches will apparently have what Samsung's attempt at a fitness band should have been. High level sensors that will continuously monitor the users health stats and relay the information in a useful manner via Google Now.


Now, while we cannot confirm anything at this time, some of the health tracking capabilities of the Moto 360 seem to have been leaked somewhere along the development line - more detailed information to come.


CloudTag Inc, ever heard of them? I hadn’t a clue who they were a week ago. CloudTag Inc are an AIM listed tech firm that offer clinical grade physiological monitoring technology to professional sports companies, consumer well being and weight loss markets. And possibly Motorola too.


With the introduction of Moto 360 smart-watch to the consumer market expected soon, rumours are already beginning to flood the market about the potential specifications of this new product. Most analysts agree that it will almost certainly come with health tracking technology and it could well be that CloudTag have offered their assistance in this:


1. CloudTag are one of the very few companies that are currently producing both the hardware and software that can make medically accurate health statistics.


2. Motorola are well known in the industry for choosing these smaller companies to work with (or buy-out).


3. Tie-ups between smaller companies and large tech giants have grown exponentially over the last three years.


Even if you're not a believer that something maybe going on between these two companies, CloudTag is still positioned at the helm of an industry that is estimated to be worth $8.68 billion by 2018.


Personally (please do your own due diligence), I don't think that I can afford not to own at least some shares in a company that's currently only worth  £7.34 million, when very similar companies that offered less accurate technology in the retail market have been bought out for multiples of that amount. For example, Jawbone buying BodyMedia for in excess of $100 million and Underarmour buying MapMyFitness for $150 million.


Also, on a more interesting note, CloudTag's chairman is also Vice-President for Chelsea and the company has strong links with the team behind the XBOX Kinect - imagine the high profile launch you could have with these link ups if they went for it alone!


Most importantly for a small tech company is knowing that you're not going to get stung by a placement and CloudTag have even covered that one, having raised enough cash to see them though for in excess of twelve months - by which time it's very likely that they'll be strongly generating revenue having launched their first MyCloudTag app already.


Good luck traders and do your due diligence,

The Masked AIM Trader.

Saturday 21 June 2014

Quindell plc - a more in-depth financial valuation.

After the very popular post I did on share consolidations and the effects this would have on the popular share Quindell plc (who deal in insurance outsourcing and telematics), I decided that there could be a demand for a more in-depth look at the company from a variety of different valuation perspectives (my favourites). All of the information is my own opinion; I don't have a licence to give financial advice so please do your own due diligence.


I've discussed before the shorting attack on Quindell, so I won't repeat myself on that front, but if anything good can have come from the attack it was that it's made the valuation metrics really look quite outstanding:


1. Dividends:


- With the first Quindell dividend awarded in 2013 of 0.1p per share pre-consolidation or 1.5p post-consolidation, the market sentiment feels like it still hasn't been able to adjust to the diverse nature of the company: Quindell is currently both a strong growth and income generating investment and to define it as merely one or the other would in the current price range be a very dangerous statement.


- With a dividend cover of 25.35 for that first dividend, it was made quite clear that Quindell are likely to take the "less is more approach" and surprise investors with better financial results in the future rather than set them up for a fall. 


2. "Trend is your friend":


- There's no doubt that Quindell has been able to generate some formidable revenue and operating profit figures:


Revenue:                                                            Operating Profit:
2010= £150,000                                                 2010= £-80,000
2011= £13,710,000                                            2011= £4,130,000
2012= £163,000,000                                          2012= £36,460,000
2013= £380,130,000                                          2013= £108,500,000
2014= £?                                                            2014= £?


- I'm not going to conjure any numbers from the air to predict what the final results for 2014 will show, but if the trend continues (and there's no fundamental reason for why it shouldn't, as Quindell has been gaining custom and not losing it over 2013 and the first half of 2014) we could see some very pleasing numbers at the end of their financial year.


- Also, let us not forget this new nugget of information, which will almost certainly help Quindell to increase its next results to all time highs: Run-rate revenue forecasts from the legal services team have increased up to £900m per year in the second half of 2014 (an increase from £650m in the first half of 2014).


3. Total Assets:


- One of the many things that I've struggled to understand since the shorting attack is why the company has traded so close to the value of it's total assets. With a total asset figure of £881,480,000 in 2013 it's staggering that Quindell still only has a market capitalisation of just over £1bn.


- Most companies trade at a reasonable multiple of their total assets, but the insurance sector seems to be the odd one out in this case, where Admiral group trade at 1.22 times their total assets and Quindell currently trade at 1.13 times their total assets.


- This makes little sense to me when we consider that although this isn't an undemanding business in asset terms it's certainly not hugely asset intensive (we're not talking about mining or manufacture). Also, accountants will know that valuing uniquely placed assets (like telematics in general) can be very difficult. This means that the total asset figure we see in the 2013 accounts could in theory be a lot higher, but that in accounting terms the rules are against us (for example, football clubs can't grant a value to "home grown" players on a balance sheet, because the only way to value them as an asset is based on what someone else has previously paid for them).


4. "Cash is King":


- This has been the only consistent criticism that Quindell has attracted since its infancy and although it's lagging cash flow is not a point to ignore, even this looks set to turn around by the end of 2014.


- Cash generation is now at £500,000 per day, with forward predictions of £750,000 per day by the third quarter of 2014 and £1m per day by the year end. If this is also an underestimation (likely join on Quindell's previous estimations) then the company will be significantly cash flow positive by the end of the year at least - hardly something to worry about for long term investors.


5. Price to Earnings Ratios:


- Quindell is currently running on a PE ratio of about 8 and a forward PE ratio 4. This forward ratio of 4 is particularly interesting, because it's been made in accordance with the estimations put forward by the company itself, which as I've already said have a tendency to be underestimates. This means that in reality we could lean on a forward PE a quite a bit closer to 3 than 4.


- If we compare the current PE ratio to other standard insurance brokers in the FTSE you get a pretty interesting picture:


Admiral: 14
Aviva: 23
Direct Line 12
Esure 49


- Apart from being a bit ironic that Quindell currently has a PE of 8 when Esure has a PE of 49 even though they currently have almost exactly the same market capitalisation, what we need to take away from this is that Quindell is seriously undervalued compared to it's dividends:


-To start with, as a company that is a leader in the new and very quickly evolving sector of telematic insurance it really should be Quindell that has the PE of 49. Secondly, when the insurance outsourcer (Quindell) has a better PE ratio than it's clients (Direct Line), there's a serious valuational issue going on.


Conclusion:

Regardless of what others in the market are saying, Quindell plc is in my eyes considerably undervalued within the current price range. Adding to this, I feel that it's the nature of the company to under estimate and over deliver, meaning that overall Quindell is likely to continue to deliver better results as 2014 progresses.


We await the interim results with bated breath.


Good luck and please comment if you feel I've missed something essential,

The Masked AIM Trader.

Friday 20 June 2014

Quindell plc Post Consolidation

Good afternoon.


Today I want to briefly discuss a stock on AIM that's become very well known to investors in the AIM.


Quindell plc is a company that specialises in insurance outsourcing and the delivery of telematic insurance products. As many of you will know, the company was hit by a very defamatory article known as the "Gotham City Report", which caused a drop in the share price from 40p to 17p.


Regardless of the company having released a full counter report with proof of the company's prospects and earnings, the market has still been wary of Quindell recently. This will in no doubt be in part as a result of the poor press Quindell has received from journalists, who apparently do very little to actually research the truth before putting it in the next day's paper and the shorting parties themselves who will have certainly have put downwards pressure on the share price to satisfy their needs for profit.


Although this seems like a pretty dreary picture, everything looks set to turn around now that a 1:15 share consolidation has taken place and that the market has been made more aware of the improving cash and revenue position of the company.


The share consolidation will bring with it several advantages (after a few days to allow the price to settle down), not limited to the following:


- Smaller spreads.

- Reduced price volatility.

- Quindell becomes purchasable for more funds (many funds have rules against investing in penny shares).


Add to this the lasted figures the company have released and you get not only a very undervalued stock, but a company that looks set to regain momentum quickly and steadily:


- Run-rate revenue forecasts from the legal services team have jumped up to £900m per year in the second half of 2014 (an increase from £650m in the first half of 2014).

- Cash generation (something that bugged investors) is now at £500,000 per day, with forward predictions of £750,000 per day by the third quarter of 2014 and £1m per day by the year end.


For a company that's currently running on a PE ratio of 8 (as of today) and a forward PE ratio 4, it's no wonder that large funds like Fidelity have been buying up stock since the fall in the share price.


Good luck readers,


The Masked AIM Trader.


Wednesday 18 June 2014

Technical Analysis - When it works best.

Good morning.


Regardless of whether you love it or hate it, technical analysis has become a very popular trading and investing tool, which people seem to try and apply in every position they make.


Personally, I feel that technical analysis can be a great trading method (especially for intra-daily trades) and that it can yield some very strong trades. However, the nature of it's huge growth in popularity means that people are now trying to apply it in cases where it was never intended to be used.


When I use it:


1. When daily volumes are high and consistent:


- This will obviously vary between stocks, but I would say that if there isn't a trade at least every one to two minutes then using technical analysis isn't going to yield any better results than luck.


2. When judging an entry:


- On some of my longer positions (days or weeks) I will use intra-daily technical analysis to judge at what price I may make an entry into a stock at. These picks usually have a fundamental reason behind the trade as well - not just pure technical trades.


3. Making pure technical analysis trades:


- This sounds obvious, but in these trades in particular I would be looking for trend lines on the chart and as many other factors (moving averages, etc) to go along with my technical analysis. In my case these trades will either be intra-daily or will only last a couple of days. Furthermore, to ensure the accuracy of these purely technical trades, I will pretty much only chose FTSE 250 stocks or AIM stocks with high volumes and low spreads.


A word of caution:


Technical analysis can make some great trades, but because it's a retrospective method an analytic tool, it means that fundamental changes in the company can cause huge changes in the technical analysis that can thus cause poor signalling in either the long or short direction. Therefore, you need to be very careful when using it with high "news beta" stocks as mis-signals will be commonplace.


Good luck,

The Masked AIM Trader.

Tuesday 17 June 2014

Catching the Bounce

Good morning,


Today I'm going to discuss "catching the falling knife" or trading price reversals after a sharp down trend.


Our case study will be Quindell plc - a great company in my opinion - which was hit both by a shorting attack and by a listing issue ironically caused by them growing too fast.


1. The chart:

https://www.google.co.uk/finance?chdnp=1&chdd=0&chds=0&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1400772600000&chddm=61320&chddi=86400&chls=CandleStick&q=LON%3AQPP&ntsp=1&fct=big&ei=97J9U-iEAbOBwAPzsIHYBQ


2. Look at the daily chart:

- We're going to start by looking at the daily chart, which is the easiest way to see the full picture of what happened to Quindell.

- The key date to observe is April 22nd.


3. Trading April 22nd:

- People who specialise in trading reversals will almost always look for two things:

                     - an intra-daily heavily oversold point to make an entry at.
                     - a case where it's clear that fundamentals have not been changed.

- These two factors were both true in the reversal on April 22nd and the most effective way to trade this situation would have been something like this:

                    - Acknowledge the price is falling.
                    - Look at the likely stop loss levels (a sharp sell off will trigger these and cause further            price falls). 
                    -  Base your entry point slightly above where a level of strong support exists (in this case around 18.25/18.50p).


4. The reasoning behind this style of trading:



- Acknowledging that the price is falling seems obvious when catching the falling knife, but on AIM in particular shares traded on SETSsq will be subject to market maker manipulation, which can cause these stocks to fake a price fall to the downside. Therefore, I strongly recommend only trading reversals where you know that the stock is traded on SETS (electronic share matching) and not SETSsq (market maker matched trading and exchange).


- Stop loss levels are incredibly important to watch, because we can use them to our advantage when we make a position in the market. If we can see a lot of stop losses on the order book placed within a tight range of each other then it's very likely that a warp price drop will activate these and cause further price drops. This means that knowing the depth of the L2 order book is very helpful when trading these intra-daily.


- Setting your limit buy or market order slightly above the strong support on the chart is essential to ensure that you're actually able to make an entry into the stock. It's inevitable that a lot of people will have orders placed on the support line to buy, but that many of those will not be triggered when the hits the support level, due to excess demand at that point causing the share price to regain upwards momentum. By having your entry set at 0.25/0.50p above this level you are hedging against not being able to make an entry at the support line and then having to pay a premium when the demand at the strong support causes the price to rise again.


5. Knowing when to hold:


- For the guys trading only intra-daily this point will matter less, but for those who tend to hold positions for a few days this is a really handy point:


                        - Look for the forming bull flag (April 23rd).


- The day after the initial price fall you will likely experience extreme volatility in the share price, but a bull flag will begin to form if the range of the share price holds above the low range of the previous day. This would be a strong indicator to hold your shares.


I hope that all of this text wasn't a turn off,


The Masked AIM Trader.




Sunday 15 June 2014

Technical Analysis and Charts

Good morning.


One question that's thrown around the internet a lot is: "To what extent can technical analysis (TA) predict the next few day's price action?"


In cases where no abnormal price action has been seen in the global markets or within the underlying equity, technical analysis often does a very good job of indicating future price action. Obviously, it falls back in accuracy when the underlying fundamentals of the company change.


Therefore, we shall use Lloyds as short case study:


1. Lloyds bank is reasonably high beta compared to the FTSE 100 and therefore would be a popular share amongst day traders using CFDs and spread bets.


2. Although Lloyds shares are subject to changes in the wider banking sector, for the best part they don't change very suddenly from a fundamental perspective.


How we can use ''chartology'' and TA:


1. In my opinion, when trying to predict the next few day's price action you would be better off looking at the thirty minute graph settings and when trying to predict the next couple of week's price action you're better off using a daily chart.

2. My chart set up for Lloyds (thirty minute chart):

https://www.google.co.uk/finance?chdnp=1&chdd=0&chds=0&chdv=1&chvs=Linear&chdeh=0&chfdeh=0&chdet=1402826707143&chddm=61320&chddi=86400&chls=CandleStick&q=LON%3ALLOY&ntsp=0&fct=big&ei=0m-dU5DCBOr2wAOyr4EY


3. This chart set up has a few advantages to merely looking at simple price signals, as it has three longer term indicators (MACD, RSI and CCI) and one short term indicator (KDJ).


In the case of Lloyds over the time period shown on the graph (Monday 2nd to Friday 13th of June) you could have made approximately  two and a half to three pence per share profit having bought based on the bullish TA shown on late Tuesday or Early Wednesday with a sell point on late Friday or early Monday.


4. The signal you would have looked for:

- The cross over of the MACD line over the EMA on late Tuesday.

- The RSI line crossing fifty on Wednesday morning.

- The CCI moving over zero on Wednesday morning.

- The sharp KDJ change on late Tuesday.


If you were more cautious, than you would have waited for all of these to confirm a bullish signal, however you could have gone with merely the KDJ change on late Tuesday and then used the confirmation or denial of a bullish sign on the other indicators to make a decision to hold that position of sell it.


The strong buying into the close on Tuesday would have also been a bullish signal for the opening on Wednesday.


Good luck,

The Masked AIM Trader.

Saturday 14 June 2014

Using Options To Manipulate The Underlying Equity.

Good morning fellow traders and investors.


Today I'm going to briefly discuss something that I wish I could use in my everyday trading to manipulate equity prices, but sadly I can't, because my account simply isn't large enough.


Most of you will know that options are derivative contracts that allow you to buy (call - you're calling the asset towards you) or sell (put - you're putting the asset away) something at a pre-agreed price.


Now, to quickly make it clear how people practically use these, you can hedge with them or speculate with them. That's pretty much it, although you can use them to assist takeovers, etc.


If I was a hedge fund that wanted an asset to move up in value I would want to create a picture in the derivatives market that looks nice and rosy in order to encourage the buying of that equity. In this instance I would be aggressively buy call options, which would give the impression to the market that the asset was going to rise in value on that day.


This may not sound too fantastic at the moment, but the beauty of options is that you can create an excellent picture for large equities in the derivatives market without spending very large amounts of money: $10,000,000 in on the US equities market is enough. This means that you can (if the market goes with your options play) take profits not only from your proportionately larger position in the underlying equity, but also on the options you purchased as well.


To summarise, the ratio of money to percentage gain you need to move an equity by using derivatives is much better than the ratio you get from just buying the equity at the present market value.


Trade well,

The Masked AIM Trader

Friday 13 June 2014

Mergers and Acquisitions

Good morning,


Especially in the UK, mergers and acquisitions (M&A) so far has been the only aspect of this current bull run in the stock markets that we haven't really seen too much of. In fact, the Canadian government even reprimanded large industry leaders in Canada recently for allowing their companies to sit on what is estimated to be well over $200 billion of free cash.


The recent failed takeover of Astrazeneca by Pfizer is a clear illustration of how M&A (in the UK in particular) has become a bit of a sore subject. There's at least one analyst every one to two weeks saying that these companies need to get on with some hard buying within their respective industries and there are many sectors where I think a sudden increase in this sector looks very likely:


The supermarkets are in my eyes looking very overcrowded at the present time and I wouldn't be surprised at all if a takeover attempt is made here. The logical takeover in my opinion would be for Tesco, which has been really struggling recently, to make a bid for Morrisons. Morrisons and Tesco have both returned -22% and -19% respectively over five years, while other supermarkets like Sainsbury's has returned only -2% over five years.


This stark contrast is hardly surprising, as when you enter a Sainsbury it's always full of people - the same can't be said for Tesco or Mossisons however. It seems to me that the likes of Tesco and Morrisons have simply forgotten the mantra "The Customer is King" - something that in any business that actually involves people is essential for making any profit.


I'm expecting a big push in M&A as the bull run comes to the end - good luck guys!


The Masked AIM Trader

A coffee trip:

Good morning,


A couple of days ago I had the huge pleasure of meeting up with one of my school contemporaries. Having gotten top grades in his A-levels and just having finished his first year at LSE studying economics, my friend is probably one of the smartest and hard working people I know.


We were meeting to discuss my attempted run at trading so far and what my friend could do to improve his demo trading account and while we were there I asked him the question I ask all other professionals and or prospective professionals:


"What is your opinion on the current bull market run?"


Now, my friend is very switched on, but I can remember the long pause that followed after asking him this, which was then followed by something along the lines of:


"I've never thought of that before."


I didn't ridicule him, but nevertheless, I was surprised that someone so smart could not have an opinion on something so important - especially for those trading high beta stocks on the FTSE100 or S&P500 it's always essential to have an opinion.


Trading and investing is all about having an opinion; yes, you may end up on unprofitable side of a trade, but without having an opinion you'll never be able to trade successfully.


Other questions I ask prospective traders are questions like:


"If people became invincible what would your trades be to take advantage of this?"


This is a technique I stole from Richard Farleigh (a man who is basically my hero) to assess the raw idea generating ability of people. I've met many people who say they could do a great job at trading, but you ask them a question like this and they stumble.


Good luck guys,

The Masked AIM Trader


Thursday 12 June 2014

One of my biggest mistakes.

Good morning again,


I'm writing this with one eye on a live graph on my other monitor, so I apologise in advance for any awful spelling, punctuation and or grammar issues.


Probably the worst trade to date that I have ever made was in a company called Armadale Capital. Without going into excessive detail, they invest in other companies within the natural resources sectors, such as Mine Restoration Investments in South Africa along with a few others.


My mistake here was failing to do a full check on the board of directors and also forgetting that the sector is very slow to evolve. It's because of this that I've added to my trading rules the following line: "Do not invest in the natural resources sector - it will take you an age to get your money back".


My failings to profitably trade this company doesn't mean that the company is bad. In fact, it has many aspects that I think are great: the low cost Mpokoto Gold Project in the Democratic Republic of Congo and the low cost fine processing and recycling plant that's a branch of Mine Restoration Investments. I made the mistake of thinking that some quick number crunching from me and a realisation of a distinct difference between the value and price after doing this would make the share price soar.


The share price didn't soar - in fact it fell almost 35% and I closed out that position with a hefty loss (for a nineteen year old).


I think that for me what caused the downwards pressure in the share price was that the Board of Directors had a tendency to release "media updates" that in hindsight were effectively unable to tell shareholders anything new. This combines with their very high salaries gave the impression to shareholders that they weren't pulling their weight properly. I felt like even more of a tit after this trade because I had been given a warning about the board of directors before - albeit on an internet forum.


I learnt a lot from this position:


1. Look for proof of a good consistent board of directors - emailing them first about something arbitrary and seeing if they reply is often a good indicator.


2. Natural resources are a slow evolving area and you'll find it hard to make profits actively trading these companies (although doubtless many people do).


Good luck trading,

The Masked AIM Trader

Why I Trade Small Caps.

Good morning,

One of the questions people tend to ask me is why I am currently so focussed on the UK small caps. It's not fair to say that I don't trade medium and large cap companies as well, but my biggest successes have come from investing in companies that have very low market capitalisations.

My reasoning behind this is that smaller companies are overlooked much more often than larger companies. This could be simply due to the restrictions on many funds from investing in on the AIM and exposing themselves to the smaller companies that float there, but it also comes down to other factors relating to liquidity (the ease of buying and selling a security) and position weighting within the fund.

It's therefore clear that as private investors we are able to take advantage of this anomalous area where the professionals don't take as much interest. I have found that my stock picks that were the most successful within this area were those picked based on support lines and fifty-two week lows within stocks that are sub penny shares with market capitalisations between five and eight million pounds.

This isn't to say that I haven't made mistakes; I have made many. In fact, I'm going to write about my biggest mistakes in separate posts. Nevertheless, my best trades have always been within these small cap companies and my biggest mistakes have always been when I break my own rules and or move out of this market capitalisation zone.

Now, just because this has worked for me, doesn't mean that it will be a good strategy for everyone to employ and I implore you to do your own research and test the waters perhaps with a demo trading account to decide if you are more of a short term or long term holder.