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Diary of a Dumb Investor: crash! go my mining shares

And I don't know why. So I'm reconsidering my strategy.

 
Diary of a Dumb Investor: crash! go my mining shares

My speculative investment in Aurum (AURU.L), the miner attempting to find gold and tungsten in Spain, threatens to blot out my portfolio's small gains.

I knew when I bought the share, just two weeks ago, that it was my portfolio’s wild card. That it could rise and fall abruptly.

But I thought there would at least be some visible news behind the share price movement. I’ve unwittingly put £1,000 into an information void.

The shares are down 18% already and I have no idea why. I can’t see any bad news. My primary investment tool, Google, is for the first time failing me.

My portfolio: Click to enlarge

There’s not much I can do but watch the shares and the company news. Maybe this is just how it works with AIM shares.

Perhaps I need a change in strategy: rather than finding plucky Aurum-type shares (my Hutchison China Meditech (HCM.L) investment isn't looking too great either), follow the herd more closely.

Sticking to this herd theme, I’ve noticed that a lot of good fund managers (ie, those highly rated by Citywire) are buying into Paragon (PARA.L), the specialist buy-to-let lender.

Short term, the company is recovering well from the financial crisis, having recently attained two credit lines. Longer term – according to a compelling argument from AXA fund manager Jamie Hooper – Paragon is a way to profit from a shift towards more Brits renting. Like shorting the dreamy-eyed British home-owning ideal.

Kames fund manager Audrey Ryan, Standard Life’s Harry Nimmo, Old Mutual’s Dan Nickols have also bought in.  

Watching what good fund managers do, backing that up with some of my own research, and then making an investment. That can’t be such a bad strategy, can it?

17 comments so far. Why not have your say?

Clueless

Feb 11, 2013 at 12:03

You will find that on AIM particularly one piece of good news can set the shares on a small rally (often before the news actually comes out). The shares then rally for a short period and tail off again until the next piece of news comes out hence the volatility.

Remember AIM shares cannot be bought in a ISA, are often not part of a tracker and most fund managers avoid them until they are more established. This leads to large buys or sells compounding the volatility and hammering the spread.

To see this in action add three that you have seen recently in the news to your watchlist and try to establish what causes the momentum both up and down.

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YoungMoney

Feb 11, 2013 at 12:06

Similar story for me, with Anglo Asian Mining (AAZ.L). Not so speculative though, good profits are being made and there is plenty of potential ahead. Unfortunately the share price doesnt seem to show any logic!

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Maverick

Feb 11, 2013 at 12:38

If you do your own research, then do what the "good" fund managers do, why bother to do your own research? You won't beat the "good" fund managers, because they hold up to 100 diverse shares, so buy their funds.

The trick is to do your own research and then ignore completely what the fund managers are doing.

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kince

Feb 11, 2013 at 12:45

It's a little too early to write-off your AUR investment, don't you think ?

When you first talked about AUR, I remember you saying something about how AUR's previous project didn't do so good.

Whatever was the reason\excuse you bought into a management team that has the wrong kind of proven track record. Next time speculate on one that hasn't.

good luck

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Marcus West

Feb 11, 2013 at 15:42

Check out Andy Hoffman at Miles Franklin. He'll explain the intricacies of short selling and dilution in the miners, and why he doesn't touch Juniors (or indeed any mining stock) with a barge pole.

Now that is not to to say we have to agree with him; he has obviously been badly burnt and treats the whole arena with extreme scepticism. Hopefully it helps to know what categories of pain you will endure if you are looking for Miner gains.

Personally I think the highest risk of any mining stock is resource nationalism. So if you think Spanish insolvency, governmental corruption and national fragmentation are fertile grounds for the next Franco, you might think carefully about investing in Spain.

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an elder one

Feb 11, 2013 at 15:46

AIM! one in ten might succeed, so why bother, unless you can afford it for fun.

I can afford to hold Sirius Minerals, in profit; a relativly very small holding.

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Luckycontrarian

Feb 11, 2013 at 15:47

@Clueless - you can buy AIM stocks in an ISA if that stock has a dual listing on a recognised stock exchange, eg a listing on AIM as well as in Canada, South Africa or Australia. Spot on about volatility and spread, but actually that can help, if you follow the company closely enough and try to monitor the spread so you buy when it's narrow.

@DI trading costs have been mentioned on here previously. Your returns are being compromised by the dealing costs incurred each time you plump for a £1k investment. Work out how much those commissions, stamp duty, fees etc have cost you over the last 6 months/year, it will make you shudder!

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Jeremy Fry via mobile

Feb 11, 2013 at 16:17

It looks likely that AIM shares will be ISA eligible from April. If this does go ahead it could give AIM shares a boost, at least in the short term, as demand increases for the wrapper.

Not all AIM shares are as dodgy as some and provided people understand the risk reward ratio I think it's a good idea.

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Graham D-C

Feb 11, 2013 at 17:24

Why take a leap in the dark, when for a modest subscription fee all you have to do is buy as many Simon Thompson's(ST) tips that you can afford before the sp runs away. S.T. does all the hard work of analysis with an extremely high rate of sucess. Still not too late with tow of his tips- TRE(23.6p -24.8p) at circa 45% discount to net assets and BPM(119-125p) net assets 178p,both are closed funds whose assets will have to realised by 2014.

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HETTIE1

Feb 11, 2013 at 17:40

Must say when i buy a share, always exspect it to go down first, as am thinking buying cheap, and wait for the turn , one thing i never do is listen to the brokers

tips,

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gggggg hjhjkl;'

Feb 11, 2013 at 17:46

DI - you seem to have an extreme case of neurosis mixed with a fairly large measure of indecision, coupled with a lack of a clear objective!!

Not a receipe for "great success".

Investing in the Aim Market in this state, well lead to disaster, I would suggest.

You might just strike lucky , but-------

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Anthony Tinslay

Feb 11, 2013 at 17:50

Bit silly to think of blaming AIM - if you thought that way then you should not have bought the shares in the first place - there are a good number of solid shares listed on AIM. You were looking for a potential needle in a haystack, or was it gold in Spain! As such and was pointed out as soon as you dipped in, you would be jumping about at the first sign of a large up or down movement and so it has proved. Impossible to reach any conclusion on two weeks or so investment..

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peawack

Feb 11, 2013 at 17:53

You should have gone to AMUR not AUR !

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Bornagain

Feb 11, 2013 at 17:58

Your comment that Paragon might be a way of benefiting from more Brits renting is only partially correct. Paragon does indeed lend money for buy-to-lets, but this is a banking/mortgage transaction in which it is in competition with other banks and building societies. It does not take a share of rents. You should really think of it as a small specialist bank. More direct investments might be Grainger or London & Stamford.

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Thoughtfull

Feb 11, 2013 at 21:36

The aversion to AIM and the love of Managers forecasts etc puzzle me.

In my experience, fund managers very very rarely recommend a share as a good buy until most of the current fast rise has been made (it was obvious)

As for AIM; the rule is listen, watch and make your own mind up and never buy in a mad ill conceived rush - appreciate the gamble and match your bet and duration to it. So far I have only lost two thirds of one out of about fifteen or so. in the last couple of years.

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Jeremy Bosk

Feb 12, 2013 at 01:59

Two of my most profitable holdings currently are on AIM - Noble Investments and Greenwich Loan Income Fund. I agree with Thoughtfull, generalisation is pretty pointless.

There is plenty of news and broker research for Aurum's joint venture partner Ormonde Mining.

You can track Aurum itself down from either the London Stock Exchange, digitallook.com, Investegate.co.uk or

http://www.proactiveinvestors.co.uk/LON:AUR/Aurum-Mining/

You need a course in how to use Google :-)

Incidentally, I see that the shares rose 12 per cent today on and update on its Zamora gold project.

Patience is a virtue.

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KDC

Feb 17, 2013 at 08:52

My biggest investment failure in percentage terms in recent months has been Avocet Mining, down to 25p from a purchase price of 137p!! The fact that it was from a small proportion of my portfolio, which I designated 'speculative fun' does not make this bitter pill any sweeter!

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