This could be the best performing share in the world this year. But don't get sucked in.
The year of massive stock market volatility rolls on. A little further down I'll take a look at one tiny company which this year just might be one of the best performing shares in the world.
But first, a walk down memory lane…
I remember the good old days, when FTSE 100 companies would rise or fall 1% or 2% per trading session. Anything much above that was considered very unusual, unless of course it came on the back of good results or on a profit warning.
Just take a look at some of the movements in yesterday's trading day. I will remind you, this was just one trading day…
- WPP Group (LSE: WPP) -- up 7.3%. No news.
- Sage Group (LSE: SGE) -- up 5.1%. No news.
- Xstrata (LSE: XTA) -- up 5.0%. No news.
- Prudential (LSE: PRU) -- up 4.5%. No news.
Admittedly the FTSE 100 had a pretty good day yesterday, rising 67 points, or 1.4% to 4,757, a 10-month high. Apparently the market moved higher because it got out of bed on the right side, or investors can see the end of the recession, or the US markets keep rising, or commodity prices rose, or England won the toss in the final Ashes test…take your pick.
Speaking of volatility, it wasn't too long ago when Barclays (LSE: BARC) shares rose over 70% in a single trading day. Quite extraordinary movements for quite extraordinary times.
Chicken-Feed
But all that is chicken-feed compared to the movements in some of absolute minnows of the stock market. In the article titled Six Index-Beating Tips, Maynard Paton listed the names of the top ten performers in the FTSE All-Share index since the bottom of the market in March.
Companies like Pendragon (LSE: PDG), Avis Europe (LSE: AVS) and Trinity Mirror (LSE: TNI) were up 1,140%, 855% and 369% respectively. How we'd all have loved to have plonked £5,000 on each of them at the bottom of the market. Sadly, I didn't, but I have no regrets.
Just like I don't have any regrets over missing this HUGE winner…
Up Over 5,000% And Still Flying
Year to date, the shares in this tiny AIM-listed company are up 5,317%.
To put that in some perspective, £5,000 invested at the beginning of the year would now be worth over £270,000. You'd have made a small-fortune in under 8 months.
The name of the company is Amur Minerals (LSE: AMC). They are an exploration and development company focused on East Russia. Yesterday Amur submitted its reserve estimate for its Maly Krumkon (MK) deposit to the State Committee on Reserves (GKZ) for review and approval.
Key information submitted included:
- the total contained copper and nickel value at MK is US$1.8 billion; and
- Amur has three deposits, and the reserves of 31.7 million tonnes of ore have, according to the company, a total metal value of US$6.9 billion.
The market was clearly excited, pushing up the shares a more than impressive 373% on the day. Even still, the company is only valued at just over £20 million. Compared to the US$1.8 billion and US$6.9 billion quoted by Amur, the shares could see some more serious action.
The potential returns sound amazing. The gains some people might have made, if they'd have held onto all their shares for the full 5,000% plus gain, are super-human.
$6.9 Billion Value For Just £20 Million
And it must be tempting for some investors to look at a market cap of £20 million versus a total metal value of US$6.9 billion and think they're onto a sure-fire winner.
They just might be. Punters certainly piled in yesterday, pushing the shares into the stratosphere. Maybe this tiny company you've almost certainly never before heard of will, one day, be the next BHP Billiton (LSE: BLT) or Rio Tinto (LSE: RIO).
And maybe not. In fact, almost certainly not. And I'll go one step further and predict this company will probably never make a profit. Many small mining shares meet this fate unfortunately. This company has political risk. It has resource risk. It has management risks. And it has huge funding risks -- in December last year they proposed removing themselves from the stock exchange!
A Recipe For Disaster
Investing in such tiny ultra-high risk companies can be a recipe for disaster. Sure some people might have got lucky in this instance, but very few will have owned this share for just the last several months. It may be up over 5,000% this year, but it's still down some 60% on the 33p it floated at in 2006. The music will stop at some point I believe.
In my view, the best strategy is very simple. You don't have to say no to small companies…in fact, if you check out this special free report, you can get the name of one highly promising small company. You just have to say no to ultra high-risk shares.
More on the economy and the markets:
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
