As I hope the start of this letter made clear, it’s a pretty speculative situation. If that’s too euphemistic for you, then I’ll put it like this: it involves a tiny stock that could easily move ten or 20 times higher in pretty short order. Or it could fall 50% or more. It might well do both over the next few years. I’m expecting a wild ride. You should know that going in.
So why would you bother at all? Well, that goes to the heart of what speculating in small stocks is all about. I think about it like this. I take my entire investment pot. Then I carve off 10% of it for higher risk plays. Then I take 5%-10% of that and allocate it to the kind of opportunities that are real “moonshots”. If they come off, they’ll change my life. If they don’t – well, that’s ok, because I only allocated a small amount of cash to it.
You can play around with the numbers involved, depending on your own risk appetite. But the point is, once you’ve got a pot of real high-risk capital, you need some way of finding opportunities that have the genuine potential to change your life if they come off.
But it’s a part of a global trend that’s delivered incredible profits, incredible volatility and, frankly, incredible mania over the last decade. Sam thinks it won’t be all that long before the trend takes off in Britain in a big way. When it does, a handful of stocks could go to the moon. Sam reckons he’s found one.
By the way, when I say Sam’s been researching this for the last few months, I don’t mean he’s been sat behind a desk reading financial reports. He’s been doing real, on the ground research. In fact, last month he demanded I send a couple of researchers and a cameraman to a field in rural England to help research this story.
I agreed. Mostly because I was intrigued to see what they’d come up with. It also happened to be a few days after Sam became a dad for the first time. I figured no one takes a day away from their paternity leave to research a stock unless it’s really important. Or they’re really tired. Or a bit of a stock geek.
Actually, I think this situation is a little of all three.
Sam’s enthusiasm when he thinks he’s on to something big is pretty infectious. He embraces risk. He knows he’ll lose money on some of his ideas. But that’s ok, because he’s searching for “the big one”. The stock or situation that changes everything. And this little stock certainly fits that category.
OK, so by now you’re thinking: “Why on earth is he being so bloody vague about all this?” And you’re right. I am being vague. That’s on Sam’s orders. He thinks the stock he’s chasing is so unique that if I even tell you what it does… I’ll spoil his hard work. It’s a bit of a black box stock: a company so small, strange and ripe with potential that saying too much is fraught with risk.
What I will say is this: this situation feels a little like the early days of the crypto boom. By the way, Sam was early on that one too, buying bitcoin at $13. Cryptos subsequently became an outright mania. Fortunes were made and lost, depending on when people acted. Another way of putting that: the earlier you got in, the greater your chance of making a fortune.
I see strong parallels with the story Sam is chasing down now. I’m sure there are fortunes to be made. And I know that there are significant risks.
Think about it like this: if you were given the chance to buy bitcoin at $13, would you do it? In retrospect the answer is yes. But at the time the answer for most people was no. Most people didn’t get interested until the price was a lot higher.
That’s how I see this situation. It’s a chance to seed a little speculative cash into something that could snowball into a massive opportunity. It’s not a sure thing and there are no guarantees. There never are when it comes to speculating on small stocks. That’s the whole point. You just want to know that with the risk comes the potential for enormous, potentially life-changing rewards.
Publisher, Southbank Investment Research