Nano Technology & This Weeks Ten Bagger Tip
This week is pretty much going to be all about stocks, trading, and a new stock tip. So if this doesn’t “light your fire” feel free to tune out.
During the week I received an email about CFU and whether it would be best to purchase it on the local exchange or in London where it’s also listed (note: if you do want to ping the Wrinkle a mail, firstname.lastname@example.org will find its way to me). Accordingly I thought it might be worthwhile to share some of my thoughts around local vs. overseas purchase of shares, both in the dual listed sense and the direct ownership sense.
Currently unless you have the right connections, it’s next to impossible to directly buy shares in the Chinese market. Which means most people either buy them in Hong Kong, or invest via various funds. This leads us to the first point, ease of trade. Local shares operate in the local time zone, and you can move at your sole discretion, if timing of entry and exit is important to your strategy you need to recognise offshore shares can lag local market news that might drive your buy/sell decisions.
The next point is news itself, the internet gives us access to global news, but if you want to focus on offshore investments you will normally need to dig deeper and research harder to understand what can potentially move a market offshore.
The “biggie” in all this is obviously exchange risk, by buying shares offshore in a different currency you are effectively doubling your risk. If you have a firm idea on an exchange rate direction and this is part of your strategy then that’s fine. But there has been a lot of exchange volatility in recent years, and given the rise of advertisements promoting earn $100k a year, trade forex at home type ad’s that volatility is unlikely to diminish in the short term. There are also emerging signs that the “carry trade” is making a comeback, so buyer beware.
Can the Wrinkle please also make one very obvious comment here, for every forex trade there is one loser, and one winner, the only person who consistently makes money is the person in the middle taking a clip on the spread. Only about 10% of forex traded is business-related, the rest is simply speculation. If you think you can consistently perform in the top 50% of forex traders by value (not number of people) then by all means go for it.
The other point in relation to dual listed stocks is that as exchange rates can spike, the exchange rate allowance built into an offshore price in the subsidiary share listing may be based on a perceived likely average exchange rate, i.e. it won’t necessarily follow the spot rate in “lock step”. So if you sell offshore you will have to bring the proceeds back or reinvest at the spot rate. So in this area we have three risks or potential costs, the actual exchange risk, the lag risk, i.e. the average exchange rate vs. the spot rate conversion risk, and of course the exchange rate commissions on top of the brokerage commissions.
The next important point for dual listed stocks is liquidity, the larger the stock the better as the larger investors will “arbitrage” value across the markets to help ensure that prices are equalised. To give you an example of this, the Wrinkle knows from his old Tokyo days of bond traders who engineered deals to guarantee a .25% spread on cross currency borrowings. Boring as “batshit” but given the sheer volume of funds it guaranteed reasonable profits per trader.
Coming back to CFU for a minute, in AUD terms the liquidity is 5 times better in Australia than the UK. Given this is not a large stock, the Wrinkle would suggest the potential for a price mis-match or lag in the UK is greater than Australia.
So to sum up, if you are going offshore, please do so with a definite strategy and be aware of the potential risks and cost. Please note that for those of us who invest in gold and oil stocks we are already doing this in a de-facto way as the commodity price is denominated in USD.
One other quick point before I get to this weeks stock tip. I’ve banged on a bit about Betfair, and also talked about five day cricket tests as a good bet/lay or buy/sell option. The primary reason for this is very simple; one of the biggest problems with amateur investors like ourselves is that we are too emotional. We become too attached to stocks, and don’t follow our trading plans or strategies when either in “euphoria” mode or “under stress” mode.
There is nothing more emotional than sports betting, and Betfair totally mirrors a stock market. So if you want to be a better trader, my advice would be to “cut your teeth” in the bet/lay market of Betfair and see it as a training exercise. You don’t need to spend much, but if you can conquer your emotions here it will “steel” you up for the much larger world of stock market.
OK, you’re all been very patient, “drum roll...”, this month's stock tip is VLA. I originally came across this in our friend Mr. Haselhurst’s Speculator column of the Eureka report and have been following it for some months now. Over the next 18 to 24 months I believe it’s another potential “ten bagger”.
The Wrinkle was waiting for the options that expired at the end of June to wash out before purchasing. The company is effectively in nano technology and has developed a smaller carrier than its competitors to carry good viruses to infect and destroy cancer cells; the research in this area is all in the public arena. Please review and make your own decisions, widows and orphans beware, remember.
VLA has funding ($5m plus in cash) in place to carry research costs for the next two years, and are currently before the FDA in the US with a proposal for preliminary clinical trials. Medical stocks like this can be a bit of a “slow burner” and then either explode or fizz.
However what I also like about VLA is the recent history and the current entry level. On the 18 January 2010 the price spiked from around 4c to 12c, then fell back to around 8c in the subsequent days before hovering around the 6c mark and has now fallen back to a key support level around the 4c mark which has been in place since November last year.
Today’s close was 3.8c and the Wrinkle currently has a cheeky order in for 50,000 at 3.6c, which almost filled yesterday. However any purchase at sub 4 cents the Wrinkle believes is a good buy. As noted above this can be a volatile stock, but given the downside drift appears to have bottomed at a longer term support level, the Wrinkle believes the next price burst will be to the upside and strongly. However as I said before medical stocks can be a slow burner, and as with all my picks they are not for widows and orphans.
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