On the other hand, African Copper made 300% in a few days a month or two later, so what goes round comes round.
Most small cap stocks on AIM or the FTSE main market are total dogs, the key is trying to find the few who are not. In addition, because of the very small amount of shares available, there are big pump and dump operations built up to screw private investors by persuading them to buy into an already overpriced stock.
Finally, the market makers hold a whip hand with so few shares and little volume available; they can to some extent manipulate the price of shares for their own profits.
All the above should serve as a warning that investing in small caps is just gambling, hence the need to keep stakes low. However, below are some of the companies I have either investments in or are on my watch list:
African Eagle Resources - This company has discovered a huge mine in Africa and is looking to confirm in the near future its potential. Plus it has the benefit of being well connected to transport which makes the mine viable, unlike many other African projects. The share price is currently 9p, although this week has been very volatile as investors await news on the quality of the find.
African Copper - An African company that owns a mine which it is looking to try to re-open after flooding, it currently has secured financing and if and when the mine opens the shares valuation will be much higher than the current 6p. This share has been pumped and dumped, so maybe wait until the price finds its new level before buying in.
Braemore Resources - This company has run out of money developing mining technology and could well go bust. Hence a share price of 3.5p. However, there are known to be several suitors for its leading technology - will they buy the company or just the technology from the administrators? One for the very brave only!
Heritage Oil - OK, so this is quite a big company now, but it was not a few months ago when i looked at it. With a huge oil find in Iraq, plus production too, this a a stable company. A recent announced merger with Turkish company Genel could propel it into the FTSE100. A share price of under £5 is a bargain.
Addax petroleum - Lots of M&A in the oil sector and this is another not so small firm about to get gobbled up by China or Indian state businesses. The share price has risen aplenty, but in my view there is still a decent premium from the £25 per share to an offer which should be roundabout £30. Short-term bet only this one.
Minerva - Property company with £600 million of debts, trying to re-finance and there should be an annoucement this week. At 13p per share it is priced to go bust, if they get the refi away then the share will go on a major rally, if not then it will head toward zero. Another one for the brave.
Right, I am always open to offers - anyone care to share their tips?