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Spread prices
Clue Less
Posted: 20 September 2016 13:27:35(UTC)
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Relatively new to stocks and shares and wonder if someone can advise me on why some spread prices are so wide.

Looking at investing in AIM company (Maintel holdings) . Think there might be a bargain there after the big drop yesterday. The problem is the bid price is 925 and the offer is 1025. that is a 10% difference and a lot to catch up on before it can go into profit. Perhaps prohibitively wide.

Is this unusual? I have not cone across it before but as I said I am new to this game. Noted that there were very few buyers, is this the reason and is it likely to change.

Any help would be gratefully received.


Law Man
Posted: 20 September 2016 16:01:07(UTC)
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I believe the reason is "liquidity". When you sell a share, the market maker has to find someone to buy that share, and vice versa. (and make its profit).
.
If you offer to sell a share in She'll or HSBC Bank, the volume is so huge that there is always a buyer. Thus the 'spread' will be tiny.
.
Conversely, if you sell a share in Midget Plc on AIM, there are few buyers; so the market makers needs a good margin.
2 users thanked Law Man for this post.
Clue Less on 20/09/2016(UTC), pete rich on 20/09/2016(UTC)
martin verlaine
Posted: 20 September 2016 16:05:59(UTC)
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This is not untypical for an AIM company where there are not many shares freely traded. I note about 76% of the shares are held by the Directors or Fund Houses so you can see that this means not many are available to trade so market makers typically increase the spread to prevent them from having buyers whose orders they cannot fulfill because there are no sellers about

I see there was a placing in April 16 which was readily taken up by existing holders.



1 user thanked martin verlaine for this post.
Clue Less on 20/09/2016(UTC)
Clue Less
Posted: 20 September 2016 16:57:55(UTC)
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Thanks for these insights gents, I can see where the problems lie, how will this change if at all.

I see there were only 6 trades today ( Sept 20 ) , not unusual for this share apart from the high volume yesterday ( resulting in the huge drop ) . To me this would suggest that one or two big buys would have a major effect on the share price.

Think I might continue to monitor but stay away for the time being. Company does look like it is on a good footing.
xcity
Posted: 20 September 2016 18:21:31(UTC)
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When transaction charges are really high trading is hard to make profitable. For a long term holder (if that is how you see the company), it makes little difference in the end.

You also need to be aware that actually selling can become virtually impossible, even for small shareholders, if the market is very limited. You can find yourself at the back of a queue in an avalanche.
Sara G
Posted: 20 September 2016 18:35:33(UTC)
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CL, you say that you are "relatively new to stocks and shares" so you may want to consider an Investment Trust to hold as an alternative, or alongside Maintel.

For example, Harry Nimmo's SLS (Standard Life Smaller Companies) is currently 36% invested in AIM stocks.
CUEBALL
Posted: 20 September 2016 19:20:01(UTC)
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'Cluey' ..it's me Cuey...

listen to what Sara is saying ...don't even consider buying individual share's till you've done your 'apprenticeship'....a good few years ...try running a virtual portfolio for a few month's and see how you get on...Only invest in companies your prepared to own for years,as most likely you'll have no choice! ....

Then again you might get lucky I suppose......more likely you'll cringe at the thought of the companies you bought and the reasons you bought them...but hopefully with a shirt on your back.

Above all don't believe the 'never lost a penny alway's taking profit's merchants' that freqeunt these boards...

All the best 'Cluey'...Cuey

x






kWIKSAVE
Posted: 20 September 2016 21:06:07(UTC)
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Cluey

I agree with my friend Cuey as some folks will always go on about how every investment they have bought and sold has been in profit.

Cuey's idea of running a virtual or fantasy portfolio for a few months to get a feel of the ups and downs of stocklmarket investment and more importantly get attuned to whether your phsyche can cope without you ending up in the loony bin.

I did a fantasy portfolio years ago on a weekly basis for the National Lottery notionally "investing" £10 a week for 6 months; the best I got was 3 right numbers once which would have earned me just £30 over that period.

I decided then it was a mug's game.

If you like a share mug up on it , stalk it for a few months to acquaint yourself with the degree of daily fluctuations in line with the market (beta) and then take the plunge if happy to do so.

I have done this with another AIM stock Smart Metering Systems.

Good luck.
Clue Less
Posted: 21 September 2016 05:14:07(UTC)
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First of all, Cluey sound like a pretty cool nickname so will get onto Citywire to get it changed by deed poll.

I have not and have no plans to put my entire life savings and family silver into the AIM market. This is a relatively small amount of capital ( say 7% ) of my total investments, the rest are safely tucked up in pensions, PEPS, ISAS and other funds. They are doing just nicely, thank you very much.

I just enjoy investing directly in shares ( more invigorating and rewarding IMO) and started doing this last year. I also inherited some shares. ( all FTSE 100 companies )

One of the few times I diversified was to put some in ASOS, it was MIDAS tip last year. It did brilliantly well but guess I am just looking for another ASOS out there , KWIKSAVE, I also got onto SMS a few weeks ago and looking good so far. There have been other disappointments though. ( e.g Ted Baker ) Guess I am just looking for the next ASOS and that brought me to my original question about Maintel and this website, glad I did so. some fantastic threads.

Cluey


Tony Peterson
Posted: 21 September 2016 08:10:59(UTC)
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I too enjoy the risks and rewards of investment.

A bit concerned, however, that as a relative novice you are looking into AIM stocks. I have lost far more on AIM stocks than I have made. And I have made considerably more from FTSE 100 stocks than I have ever lost.

So ii I was in your situation I would be looking at my FTSE 100 stocks and asking myself in which of these do I need a larger stake in order to make the next dividend of investable size? (if it isn't that already). Or alternatively, which of these is trading around its year lows. A decent stake in mega-caps ought to be delivering a four digit dividend before you decide to stop growing it further..

The spread in FTSE 100 stocks is, these days, trivial. Forty years ago you had to wait until a newly purchased share had risen 3-4% before you were showing any profit. These days most of my purchases are in profit by nightfall. And no third party is helping themselves to half of the returns it makes.
1 user thanked Tony Peterson for this post.
Clue Less on 21/09/2016(UTC)
Clue Less
Posted: 21 September 2016 09:40:06(UTC)
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Thanks Tony, probably down to beginners luck that I got two decent returns on two AIM stocks, is ASOS really a conventional AIM stock though?

Most of my portfolio is still FTSE 100 so will continue with those or bigger 250 companies. I inherited about 5000 pounds of Next shares which just seems to be sinking and thinking of trading them in for Glaxo, bigger dividend yields and SP helped by a potentially stronger dollar.

Two things stop me from doing this, I have an emotional attachment to the Next shares ( I know I shouldn't ) and I also have a decent number of AstraZeneca, is there a golden rule about diversification.

Will keep monitoring and tread carefully in the AIM world but there must be some other ASOS out there.


Alan Selwood
Posted: 21 September 2016 10:05:19(UTC)
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When investing in AIM stocks, bear in mind that the pros in that market (like Giles Hargreave at Marlborough Fund Managers) often have a very large number of stocks, in his case well over 100, so that the inevitable bad choices don't ruin the performance of the fund. You may consider it wise to have a much wider diversity in AIM stocks than in FTSE 100 companies. I would suggest an absolute minimum of 20 well-researched AIM companies which are clearly both profitable and growing for the small part of your total portfolio that you devote to AIM. Fifty would be even more sensible, but it starts to become unwieldy and apart from inheritance tax reasons for buying direct holdings (see below), is far better done through a fund run by someone who knows the companies intimately and is astute enough to sort most of the wheat from the chaff.

I think it best not to try to 'aim' for the one huge winner - if you miss the elusive target you could lose all, or at least disproportionately. Read John Lee's columns in the FT on Saturdays to see how a successful AIM investor approaches that market - and even he doesn't get them all right!

What are the reasons for investing in AIM stocks at all?

a) The hope of huge growth in a successfully selected stock as it grows from next to nothing to a major market force, or gets taken over by a bigger company for silly money.
b) To save inheritance tax by holding a qualifying AIM stock for over 2 years before your death.
c) To save stamp duty on purchases.

Adverse consequences of using AIM stocks:
a) The spread is often much wider than on bigger companies, so it's really difficult to trade in and out of them at a profit.
b) Liquidity can be a problem - you may have to make lots of small purchases or sales, because there may not be enough other people in the market to supply what you want to buy or absorb what you want to sell.
c) Regulation is lighter, so some AIM stocks are a trap for the unwary (se what happened to Globo, for example!),and sometimes the expected shareholder rights get trampled on - especially if the stocks are issued by companies in (for example) China, where the 'owners' may decide to delist the company, at which point your holding can become effectively worthless.
d) Many AIM stocks are start-ups where the concept may look attractive, but the execution of it may sadly be shaky, or the ideas are overtaken by similar ideas by better-funded large companies.
e) Losses can be much more severe than in most large stocks.

There is a topical article on Citywire about AIM stocks:
http://citywire.co.uk/mo...y-shooting-gallery-list

I did not read it before typing the contents of this post!

4 users thanked Alan Selwood for this post.
Jeff Liddiard on 21/09/2016(UTC), Micawber on 21/09/2016(UTC), c brown on 21/09/2016(UTC), Clue Less on 21/09/2016(UTC)
Tony Peterson
Posted: 21 September 2016 10:17:10(UTC)
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Clue Less

I think there are three reasons, not two, for hanging on to your Next shares (not a company I have any stake in myself). The third being that -unless you think Next might follow BHS to the exit - selling a stake because it happens to be out of favour - as most retailers are at present - is selliing low after inheriting high. It could even be worth a top-up.

I don't think there is anything wrong with an emotional attachment to a company either. I've one in GSK as the G part saved my life 78 years ago - in the pre-antibiotic era - and it keeps me ticking over now too. I've sliced a bit of profit off our GSK holdings when it went over £17 briefly, but will be very happy to replace those should the price fall below 1550. Since all of our holding was purchased at an average of £11 a few years back I have an even stronger attachment to it now. But I don't mind carving the odd bit of profit off.

"Diversification" is part of a mantra used by snake and lizard oil promoters. As our portfolio evolved GSK found itself our largest holding, and AZN our third largest. I'm comfortable about that. Very comfortable.

kWIKSAVE
Posted: 21 September 2016 22:47:49(UTC)
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All

I take a different view from Alan Selwood in respect of AIM stocks.

I have gone for just one AIM stock. To have 20 for me would be time consuming to monitor and expensive to turnover as I might be tempted to do with the inevitable loss making ones. While Giles Hargreave is experienced, would rather have control.

SMS has an exciting future with more and more utility companies signing up part of their meter kingdom. It's in my ISA for CGT advantages.

It may be that they come to the full market within the next 5 years as smart meters may so much sense and they are ahead of the game in case of competition. ok there is a potential loss of IHT relief in that situation but that does not worry me.

If SMS got to more than 10% of my paltry portfolio, I would do some trimming.

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