Robbie Burns
Robbie Burns's columns :
14/10/2005The Naked Trader Book
30/09/2005Market Downturn?
11/09/2005Soaring Portfolio Strong Markets
30/08/2005Get Rich Quick Greed
10/08/2005All about IPOs
27/07/2005What's the best way to go Short?
13/07/2005Trend Timing - Let the Trend be your Friend
08/07/2005Terrorism and the Stock Markets
28/06/2005London Stock Exchange SETS mm
13/06/2005Holiday from the Markets
06/06/2005Dividends
23/05/2005Penny Shares >>
09/05/2005A Cautionary Tale about Stock Gossip
25/04/2005Making Money from the Markets
11/04/2005Buy Winning Companies not Losing Ones
29/03/2005ISA Shares
13/03/2005Trading Patience
28/02/2005The Bear Necessities
16/02/2005Stock Market Psychology Seminars
01/02/2005Share Imagination
19/01/20057 Deadly Stock Sins
10/01/2005Happy New Year

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Robbie Burns – The Naked Trader

Robbie has been trading full-time since 2001. His book "The Naked Trader" (which also has useful information on how to use advfn) has become one of the biggest-selling finance books, reaching the top 150 books on Amazon - order it here. Trades made for Robbie's website have amassed profits of more than £300,000. You can read about his buys and sells daily at www.nakedtrader.co.uk.


Penny Shares

23/05/2005

Penny shares. Let's face it; they're seductive little buggers aren't they? They scream at us: "Buy me! Buy me! Double your money in a week, maybe treble it, maybe you'll become a millionaire..." I've been seduced quite a few times over the last few years. Sometimes I made money and sometimes I lost a lot. I'm much more experienced now and I treat them with immense caution.

I don't see any problem with an otherwise decent and balanced portfolio containing one or two risky penny shares with a small amount for a bit of fun/entertainment. But there is a problem when would-be investors start out their investing by buying into penny shares in the hope of a quick buck. They read something on a bulletin board or hear something in the pub and merrily go ahead and "punt" on the share concerned without doing any research at all.

Here, for example, is an e-mail I've just had from a reader. I'm not going to name the company concerned just in case any of you get seduced:

"I'm looking to invest in some penny shares. Hence, I have heard loads about a particular company namely from some budding investors at work. Admittedly, I don't know much about them at all, but, looking at their share price over the last year, they seem to have struck bounce-back syndrome pretty quick and look to be rising in the near future. From the RNS releases they look to have a sound business model. Buy price at the moment is 3.10 pence a share."

This is the kind of mail that makes me worry about the writer. What he failed to mention was the current sell price of this company is 2.5p! That means if he buys the share, he is already down a massive 20 per cent. The sell price would have to rise 20 per cent just for him to break even.

His reason for buying? Someone told him at work. What's worse is he says: "I don't know much about them at all..."

The answer to that is for goodness sake, find out!! Use ADVFN and all its resources to read everything about a company before you buy it blindly.

Actually, he did mention a reason for buying: "They seem to have struck bounce-back syndrome".

Well, he's right. The shares have risen from 1p to 3p. But that's no reason to buy in itself. What he wants to do is buy the shares because it's exciting! And I bet nothing I say here will put him off.

Do you know the worst thing that could happen to this chap? He buys at 3p and the shares double! The next thing to happen after that? He'll end up getting cocky and only buy penny shares and, of course, the next buys will be a disaster. So what I'm saying is, by all means, enjoy the fun of penny shares and maybe stick 5 per cent of your overall funds into them but don't pretend to yourself that it's investing.

Remember, the spreads are wide, the market in them is often illiquid, and you could (and probably will) "do your brain". Invest wisely and don't let a rush of blood to the head make you press the buy button and buy a shed load of shares that may end up being worth nothing.

The recent sell off in small and medium company shares has thrown up a few bargains and I've been getting stuck in and buying companies I feel look like great value at now bargain prices, albeit using relatively tight stop losses in case the malaise continues. Those companies include Carrs Milling Industries and Dart Group.

I've also been buying/topping up in companies that have proved themselves strong during the recent sell off. These include Roxboro (bid possibilities here too), Kier, and Erinaceous.


You can read Robbie’s daily market comments together with his latest buys and sells at his website www.nakedtrader.co.uk

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