Shiver me timbers; I’m back! After sailing the seven seas, I have moored up at Southwark Bridge to replenish my victuals and to tell you all about my money-making tactics. And now is an excellent time because stormy stock-market seas make it difficult to extract many doubloons - however hard you try. You need a new tactic and that tactic is to think like a pirate.
That means never trusting anything you are told by a share pusher. They are only interested in selling a share today - there’s no aftercare. Always do your own research and, above all, look at the relevant share price chart; a share that's heading rapidly southwards is more likely to end up in Davy Jones's locker and is never likely to make you money. Remember that lots of people know more about a share than you do. So if they are selling, there's a good reason why and it's too dangerous to buck the trend even if the accounting basics look good. You also need to be self-disciplined. Pirates only survive by making the right decisions - one false move and you're a gonner. So you need to spot the right shares to board and those to avoid. To help you, I advise that for every share you want to buy, you need to find one to sell. Hanging on to duds will drag you down and make you an easy target for a privateer.
So here are my six rules for a penny share pirate:
• Get alongside your quarry fast. If you like what you see from the gunwale, board quickly before rival brigands realise booty potential.
• Expect collateral damage to your pocket when you deal in penny shares. Unless you buy into a new issue, or when a ship is raising fresh finance, there may be a big gap between buying and selling prices.
• Pirates don't hang around. If you double your money, sell half the holding and look for a new vessel to attack.
• Navigate well. There's often little research on penny shares and what there is may be paid for by the company. So all too often you must do your own. Be a bold buccaneer and ring up the management of small companies and ask them questions - you might get some interesting answers. Avoid shoals by being realistic about booty potential.
• Don't become a wreck yourself. Use a stop-loss to avoid Davy Jones's locker.
• And to say it again. Look carefully at a share price chart before you board, or you might have to jump ship quickly. Lots of investors know much more about a company than you do and a falling share price usually takes a long time to turn around - if it does at all.
On that note, here are my tips on how to spot a shipwrecked stock:
Let's cruise up the Ouse to Bedford. I moor by the bridge and lead my band of scurvy knaves into the centre of the town after passing tents selling an amazing variety of victuals, including sweet chillies and sweet ginger from Iran and six types of yam. The centre of Bedford is a shopping maelstrom. It's where cheap northern retailers such as Poundland and Wilkinson meet southern designer toffs. All the major department stores and national chains are within a few mizzen masts of each other and surrounded by a smorgasbord of at least 10 coffee shops (all tested), burger bars and a remarkable number of charity shops. There are also retail outlets that have disappeared in most southern localities - an old-fashioned ironmonger and a seamstress. A local tattoo parlour is a poop deck away from an upmarket jeweller. Supermarkets (apart from Lidl on the eastern fringe) don't get a look in.
And the shopping maelstrom is expanding, with planning permission given last year for lots more retailing space. The schemes include the £200m development of Bedford town centre west, which takes in a 20-acre bus station site and Riverside Square which will be "a quality destination for drinking, eating and retail opportunities".
So guess who has the best site of all in the centre of Bedford? Department store Beale. Unfortunately, competition is intense - with Next next door and Marks and Spencer a cannon ball roll away. Beale clearly cannot compete, seems to have a low footfall - even when regular sales are on - and by far the most popular department is the cafe on the first floor.
Beale agrees that it is badly placed. And, if Beale did not have extensive property backing, it might already be in Davy Jones' locker because last year it issued three profit warnings in a six-month period and its portfolio of 11 stores is too small to earn big discounts from suppliers. Beale is looking for a sale and leaseback on its Bedford property, but might be better off exiting altogether. In total, it has three freehold and eight long leasehold stores and they give the company a net asset value of just over 100p, which is more than double the share price. But, with losses in the 12 months to end-October 2008 expected by analysts to rise from £1.39m to £1.9m (even after allowing for £1m of cost-cutting benefits), the property bulwark will be ever more important to stop Beale sinking. Beale is a ship to avoid.
Doing battle with the Revenuers
The man from Customs and Excise has always been one of the pirate's chief enemies, and so it remains today. You need to safeguard you're booty or you'll find yourself trampled underfoot like Blind Man Pew. The current head of the Excise, Chancellor Alistair Darling, is a particularly dangerous adversary. He deserves to be clapped in irons and put in the bilge for the ham-fisted way he has introduced new capital gains tax rules - and upset a lot of private investors. The rules needed to be simplified, but a common tax of 18 per cent from 2008-09 for everybody (apart from business proprietors) will benefit new owners of second homes in the UK and knock investors willing to back risky ventures on the Aim or Plus (formerly Ofex) markets. Quite why new owners of second homes have become a priority on the socialist helplist is a mystery, but other investors will have to pay capital gains tax at 18 per cent. That'’s an 80 per cent hike on the current 10 per cent tax rate if the Aim or Plus Markets' quoted share has been held for at least two years.
