The stock market is closed today after a 4 day week that saw a lot of nervousness. Geopolitical risks seemed to be heightened by tensions between the EU and the UK and the US under the leadership of Donald Trump seems to lack direction. The Federal Reserve plans to increase interest rates, Trump wants them to stay low. The United States needs its own people to save and invest. They can’t rely on more inward investment from China and so a more regulated and less risky financial system coupled with higher interest rates would seem to make sense. Meanwhile, we small investors need to avoid putting all our eggs into one basket by diversifying.
Any sign of common-sense and cooperation between the superpowers is good for the global economy. There doesn’t seem to be much chance of that at the moment as things get more volatile. Someone once said there is never a bad day on the stock market, when it’s down you buy and when it’s up you sell. It’s not quite as simple as that but there are always opportunities. We need certainty but we find continued risk and uncertainty.
In volatile markets, you have to assess risk and make forward predictions. The AIM is one of the most volatile and you have to look not only at the current value of a company but at the potential value. I’ve been watching Solo Oil and the price dropped quite dramatically from a high of 0.8 right down to 0.45 yesterday. Those are the bid prices and the spread at the close yesterday was a massive 20%. That was obviously the market makers manipulating the price to trigger stop losses and increase their margin.
The surprise news of the week came from Solo Oil which announced it was investing in helium exploration by buying a 10% interest in Helium One Limited with an option to buy a further 10%. This news trashed the share price even further and wasn’t greeted with enthusiasm by the market. This acquisition could add to Solo Oil’s hidden value. The hidden value is in the gas field that Ntorya2 was supposed to validate. Now we have bought into more potential value but that is all Solo Oil is, potential without the realisation of value. The gas sales from the Ruvuma well was realisation of value and fuelled optimism about Ntorya2 leading to a soaring share price which then crashed when shareholders were disappointed with results.
One thing I have learnt about investing is never look back and regret your decisions. You can’t change the past so concentrate on the here and now and of course try to predict the future. I have sold a few shares a little too soon but who knows what will happen to them tomorrow? It is better to sell too soon and make a profit than sell too late and make a loss.
Sometimes it is the whole market that crashes and sometimes it is one or two share prices. To limit the damage, we need to diversify and have some investments not associated with the market. Then a big drop in the part of your portfolio that is invested in the stock market isn’t quite so damaging. I have an investment in peer-to-peer lending through Zopa. Surviving a crash emotionally is a different matter. People get excited about making money and upset when they lose money but you can get used to seeing it as numbers on paper or on a computer screen. There has been a lot of excitement on the forums recently about Solo Oil and the price soared from around 0.3 up to 0.8 more than doubling the value of my investment and then this week the news from NT2 wasn’t quite what some investors expected and the market makers slashed the price.
Most people understand the basics of economics. Recently there has been a worldwide glut of oil and so there was competition among producers that led to the oil price falling to below $50 a barrel which meant many producers were selling at a loss. Supply and demand largely dictate prices but in the case of oil, we also had to look at how much oil was stored. It will take a while before those stocks are deleted. When oil stocks are low then the oil price could soar to new heights again.
Eating out and buying takeaways can work out expensive with 20% VAT on top of the bill and the same applies to entertainment. I follow a gluten-free diet and so rarely eat anything out and even buying chips is complicated because they have to be cooked separately. When I do spend money, I always look for value. I went to a community night this week and had an evening of entertainment for the price of a 50p cup of tea! Look for value when you want food and entertainment.
As a small investor, I obviously watch the stock market mostly to look for bargains but also to look for trends. I also watch some of the forums to see what other investors are saying. There is a lot of ramping because sentiment does influence buying and selling but not to an extent that we can influence it. I do suspect that traders in the City of London are more positive and tend to buy on days when the sun is shining! I don’t base my dealing on the weather forecast, though.
Just the way we think about finance can help us save money and make money. Finance can be about risk and a diverse approach to finance can limit that risk. Using a diverse approach when we are investing is fairly common but we can also use a diverse approach when we are buying too.
Solo Oil isn’t the only stock in my portfolio but it is the one I’ve been watching this week. It has soared from 0.42 to 0.53 (BID) since last Friday. The spread is still ridiculously high at 7.55%. The games market makers play! They have triggered a lot of stop-losses this week and stopped the games of some day traders.
I missed my thrifty post again this week because I had a busy day again yesterday. January for many people isn’t about bargain hunting but about financial survival. Now we are into February and just past the halfway point of winter, we need to think about winter fuel bills. We also have to think about balancing the budget and make sure no more money goes out than comes in. If we treat our finances like a business we can also watch cash flow and perhaps use a credit card to delay certain payments.
Researching investments can be difficult. The best way is to read all the annual reports of every company. That is a good idea if you are making a major investment but who has time to read them all?
I don’t have much news this week except for Solo Oil which made some progress as we await news of Ntorya 2. That well was spudded last month and I thought we might have news before now. Private investors are positive and more people are buying than selling. There are inevitably a few who bought when the shares were at the bottom who are taking their profits.
The stock market will close at lunchtime today and for small investors, it will be the ending of trading for 2016. Did we have a good year? I saw my portfolio take a huge dive following the Brexit vote but as the market recovered my returns recovered too. So I’ll be ending 2016 reasonably happy with my investments.
Some investments take a long time to come good and are much riskier than the FTSE 100 companies. We can limit risk by diversifying and limiting our exposure quantitatively. These investments often lose money, at least on paper in the short-term, but can give a good return in the long-term.
Many investors make an investment in a small company and hope they make it big. I have high hopes that Solo Oil will make it big with its shares in oil discoveries both in Tanzania and in the UK.
It doesn’t matter what the panic is, a strike, a bread shortage or an oil glut. There will be people who will exaggerate the problem and so a belief will spread that things are worse than they really are. The speculators then make money buying up the commodity that is in short supply or taking advantage in some way. Has panic got worse? As far as the money markets and stock markets are concerned, I think it has and so there are now more opportunities for making money.
There have been lots of warnings this week of a pay squeeze coming that will affect the poorest in society most and maybe more benefit cuts too. The chancellor even hinted that the triple lock on pensions could be abolished.
The latest buzz word to join those most-hated headline grabbing words that editors love is post-truth. We are now in an era of appeals to our emotions as the evidence is swept away by a tide of nationalism. We have had two world wars driven by nationalism. Do we really want another?
There have been many events since 2008 that have spooked the financial markets but Brexit and Donald Trump winning the US presidential election must be the most nerve-jangling for investors. Clinton had plans that were seen as negative for the pharmaceutical industry but Trump also seems to be a threat to Obamacare that could also have a negative effect, as well.
Basic economics tell us that supply and demand dictate prices. The current over-supply of oil has reduced the price to under $50 a barrel but is this rule always true and what drives demand? If everyone gets a pay rise, demand is increased but where does the money come from? All money comes from central banks, of course, and so it is the central banks that create demand by printing money.
The trade agreement being negotiated between the EU and Canada, CETA, was effectively blocked by a Belgian regional government but yesterday a compromise was reached. The agreement runs to 1,600 pages and is a complex, comprehensive economic and trade agreement that demonstrates how difficult it will be for the UK to negotiate a trade agreement with the EU in the event of Brexit. Free trade with Europe will be by lengthy negotiation, if at all. Do we need free trade with Europe? Some controls on imports such as requiring goods to be of a standard that supports sustainability might be a good idea. Many goods imported into France need to have a 2-year warranty rather than the usual one year. Isn’t that a good thing?
I’m watching interest rates around the world. It seems the Federal Reserve will be the first to normalise interest rates. It could be as early as next month but many pundits are betting on December. That could be the trigger for other central banks to raise their rates too. It would certainly have an effect on the value of the US dollar as more money would be invested in the US as international investors look for better returns on their funds. That, in turn, would have a negative effect on other currencies including the GBP.