The prospect of lofty returns on speculative investments can provoke interest for the uninitiated and seasoned investor alike. They can take you on an exciting journey in a company's development... or they can be a gut-wrenching, nightmare of disappointment.
The challenge is there are so many potential companies on the ASX, most cannot be covered in great detail by professional analysts. So investors are left searching for alternative sources of information.
In many cases, Google presents numerous US-based robo-journalism sites that pull together seemingly legitimate articles that are nothing more than publicly available quantitative data, overlaid onto a fence-sitting, boilerplate narrative. Headlines like "Director Joe Blogs sold 1 million shares in XYZ, is the company in trouble?" are a common example.
While such sources are usually just rehashing publicly available information, fortunately, they are at least, factual. Scraping the bottom of the barrel for investment research, are public stock forums where thousands of investors congregate to up-ramp or down-ramp their favourite stocks, in an anonymous cesspool of horribly misguided selection bias, confirmation bias and herd mentality. Usually signed off with IMO (in my opinion), as a catch-all for absolving one of rampant defamation against company management teams. Psychology professors would be able to design a university curriculum around the astonishing behaviours exhibited. IMO.
So where does that leave investors?
There's no denying, speculative stocks are high risk with a long journey ahead. The price paid is an often unbalanced outcome of the collective public's view on the value of that risk. Low trading liquidity can severely distort a buy/sell price against any rational valuation and make it possible for more experienced players to significantly manipulate trading movements, at least in the short term. Ultimately individual investors need to be realistic about their own risk tolerances, fully appreciate unproven stocks can go bankrupt, and in the absence of competent research, invest/punt accordingly.
In less than six months, Brainchip had some investors paying 3 cents per share, while others paid 97 cents, a difference of more than 3000%! Quite a premium for an outlook of future success.
If you missed our Part 1 write up, take a look here - Is Brainchip the next big thing?