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The madness of betting against the spread

Ten pound note
Hmmm. Not much cash left.

I’ve had a letter from an organisation called “Shares have feelings too” asking me to stop the senseless suffering.

“Dear John,

Please stop the senseless suffering that is the ‘Bombed Out but Bouncing Back’ virtual portfolio.

Shares have feelings too, and your weekly record of the slings and arrows the portfolio suffered, not to mention the outrageous fortune you have blown on this stupid scheme, qualifies as extreme cruelty.”

I am inclined to agree, but at least the shares don’t suffer long.

They tend to appear on the radar (the stock filter), sidle into the portfolio all “glad confident morning” and then crash out a week later like a drunk thrown out of a nightclub.

As a case in point, this week we sold all but one of the portfolio, with only Proxama PLC (LON:PROX), the proximity marketing specialist, somehow keeping its share price above the magic 50-day moving average, despite shedding around 10% in the last week.

So, out go: Hayward Tyler Group PLC (raised £931); Metal Tiger PLC (raised £974); Nektan PLC (raised £902); React Group PLC (raised £1,005) and Sphere Medical Holding (raised £953).

With the exception of the Nektan holding, which cost just over a grand, each of those stakes cost around £1,095, so once again we exited stocks at a loss.

(Sod's law dictated that Hayward Tyler would shoot up the day after we sold.)

 

After selling that little lot, cash is £4,766, give or take a few pence. We’ve got eight new candidates for the portfolio, one of which is delisting soon; we’ll ignore that one, which leaves us seven candidates:

BOS Global Holdngs NL, City of London Group plc, Corero Network Security PLC, Graphene NanoChem plc, Kin Wellness PLC (formerly Fitbug Holdings Plc),Nautilus Marine Services PLC and Papua Mining PLC.

If we buy all seven we’ll be spending less than £700 per holding and I am not happy spending less than £1,000 per transaction as we’re getting stiffed on the bid/offer spread as it is without having to worry about the broker fees taking up a disproportionate amount of our rapidly diminishing funds.

So, from now on, all purchases must be of at least £1,000, even if we have not got enough money to buy all the stocks the filter says we should.

With less than five grand to waste … er … invest, that means we can only buy four stocks and to determine which one I have ranked them in order of bid/offer spreads (lowest to highest) expressed a percentage of the mid-market price.

That throws up some interesting numbers and begs the question: why did I not think of it earlier?

Well, I did, but part of the purpose of this series has been to expose the lunacy of trading too regularly and therefore exposing yourself too frequently to the inequities of the bid/offer (sometimes called the bid/ask) spread.

Anyway, here are the numbers:

  • Kin Wellness 3.1%
  • Corero Network Security 3.5%
  • BOS Global 4.4%
  • Graphene Nanochem 5.7%
  • Papua Mining 9.5%
  • Nautilus Marine 15.9%
  • City of London Group 18.2%

Remember, the percentage figures next to the company name essentially represent how much you’ll need the shares to rise just to break even.

Using our new-found discipline regarding not throwing good money after bad, our purchases this week therefore are Kin Wellness, Corero, BOS and Graphene Nanochem.

Fitbug Holdings Plc (LON:FITB)

Soon to change its name to Kin Wellness, this used to be a “me too” producer of an wearable activity tracker of the sort beloved of joggers, gym rats and people who have no imagination when it comes to buying presents at Christmas.

Wisely, the company backed out of the consumer retail arena, where it was in competition with the likes of Fitbit and Apple, to focus on the corporate market.

READ: Fitbug jumps as ‘large financial institution’ renews as a customer

Bought 692,000 at 0.17p

Corero Network Security PLC (LON:CNS)

The cyber-security firm specialises in counteracting distributed denial of service (DDOS) attacks; DDOS attacks essentially entail bringing a company’s web site down by overwhelming it with input/output requests.

Shares took a licking last year after a profit warning but this year the company appears to be back on track.

 

 

Bought 16,200 at 7.25p

BOS GLOBAL HOLDINGS Ltd (LON:BOS)

The office efficiency software specialist has been in the portfolio before and was one time making a profit before a sale at a (relatively) small loss of £249 was triggered.

Since then, the company has issued its interim results and revealed it is on track to launch its flagship software suite, BOS 360.

 

Bought 10,200 at 11.5p

Graphene NanoChem plc (LON:GRPH)

A bit of debt restructuring has brought the materials and chemicals specialist back into favour with the market.

READ: Graphene Nanochem pleases market with debt restructuring

The nano technologies specialist’s share price has halved in the last six months as investors waited on a reboot, which is now well under way.

Bought 16,100 at 7.3p

Scores on the doors

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

BOS Global

10,200

£1,188

11.65p

11p

£1,122

-£66

-5.6%

Corero Network

16,200

£1,190

7.34p

7p

£1,134

-£56

-4.7%

Kin Wellness

692,000

£1,191

0.17p

0.16p

£1,072

-£119

-10%

Graphene Nanochem

16,100

£1,190

7.39p

7.01p

£1,129

-£62

-5.2%

Proxama

220,000

£1,005

0.46p

0.35p

£770

-£235

-23%

 

  • Cash: £6.74
  • Total value of original £10k portfolio: £5,233.95
  • Profit/loss on closed trades: -£4,229
  • Unrealised profit on current holdings: -£537
  • Total profit/loss: -£4,766
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