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The level of speculation in AIM stocks

How much speculation is there in AIM stocks? Quite a lot based on some figures recently published in a FinnCap newsletter.

“Speculation” might be defined as a short term bet on a share price rising or falling. That’s the opposite of “investment” where someone takes a view on the medium to long term returns from investing in a company.

These are the figures published by Finncap for the ten most traded AIM stocks in September – based on the percentage of the overall market value of the stock that was traded during that month:

Company %
Monitise 28
African Minerals 23
Blinkx 14
Gulf Keystone Petroleum 14
Optimal Payments 12
ASOS 11
Archipelago Resources 10
Quindell Portfolio 9
Ithaca Energy 9
Rockhopper Exploration 9

Let’s look at a few of these companies to see what might account for the high volumes. Monitise published some preliminary results in early September which might account for the high volume, and the share price improved substantially during the month. African Minerals issued some Interim results in September and announced a strategic investment in one of their projects on the 26th September which caused the share price to jump upwards. In Blinkx there were some director share sales during the month, but the share price actually rose slightly in that period.

So there is possibly some reason for share price increases, except in Blinkx which seemed to be contradictory. But you have to bear in mind that for every buyer there is a seller. So in Monitise for example, it means that 28% of shareholders presumably did not like the issued news, and hence sold, whereas 28% did and hence bought. In other words, although everyone was seeing the same news, they seemed to have taken a contrary view of it. Or perhaps the sellers were selling in the hope of buying back at a lower price later when the euphoria had subsided, as indeed it has of late. Or perhaps there were some folks “top-slicing”, i.e. realising a part of their profits as the share price had reached a level which they considered to be an opportune moment to sell.

But the point I am trying to make is that the fundamentals of these companies, except perhaps in the case of African Minerals, did not substantially change. And even if they did why would the good news, which increased the share price, cause 28% of holders to sell in Monitise?  Surely even more reason to hold on to the stock?

However you look at it there are apparently shareholders trading the stock not on fundamentals or actual news, but on other grounds. Which surely means there is a high level of “speculation” taking place in those companies. That is surely something that any investor, rather than speculator, in the shares of these companies should take into account.

Roger Lawson

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