Last week’s article pick, Phoenix Copper (PXC), irritatingly decided to break out only a few hours after I’d submitted the article. By the time it was released online, and certainly by the time the magazine landed on your doormats on Friday, the stock had risen by over 30 per cent. This is annoying, because I often try to pick stocks that have yet to make a move in the hope that you have the opportunity to take the trade (should you think it holds any merit of course – I get plenty wrong). But sometimes it can happen that the stock moves in the short time frame before the article has been published.
Research is of huge importance in the UK small-caps market. As I wrote on Twitter, the more well-known a strategy becomes, the closer its Sharpe ratio moves to zero. The higher up the food chain you go the more efficient markets become. But, in UK small-caps, the market is both illiquid and inefficient. Institutions are unable to take such sizeable positions in smaller companies because the companies themselves are not big enough. This means smarter and more effective money hunts in larger stocks and markets elsewhere. Much of the secondary trading on Aim is driven by private investors – people like you and me.
There are many well-drilled and knowledgeable private investors. But there are even more who are not. You only need to go onto any bulletin board to see proof. Almost every day, the most discussed stocks on bulletin boards on a daily basis are speculative and unprofitable. Why is it that so much interest is given to lossmaking businesses?