This column normally believes in long-term investing – let’s say over five years or more – so it’s a drastic change of course to seek to double our money in a week. Rest assured that we will go back to “get rich slow” next week, but today we aim to help readers win one of the new weekly prizes in our Fantasy Fund Manager competition, the latest round of which begins next Tuesday.
In this third contest in the series we have increased the weekly prizes very significantly from £100 to £1,000 so there is now a strong incentive for readers to try their hand at this alternative, quick-fire approach to making money on shares.
Questor must stress that we would only ever discuss such short-term speculation (it cannot be called investing) in the context of a competition such as this and not when your own real money is on the line.
Perhaps the real benefit of this exercise will be as a demonstration, if any were needed, of the near impossibility of making large gains in short periods with any kind of reliability on the stock market.
In the long term, a rational analysis of a company’s strengths will tend to win, but over short periods the benefits of such evidence-based approaches are swamped by the effects of sentiment.
Investors, even professional ones, are human beings and their actions are affected by what is going on around them and by what others do, even if in the cold light of day nothing has changed at the company in question.
So with all those caveats on the table let’s try to answer that question: if we want to double our money in a week in the stock market, what should we do?
Step one: avoid the FTSE 100. On the whole the bigger you are the more stable you are and the less scope there is for a single event to move your share price materially. In fact, ideally we need to be exploring the lower reaches of the market: the FTSE Small Cap, Fledgling or Aim indices. Among some of the tiny companies here there really would be a chance of finding stocks that could double in a week.
Unfortunately those options are not open to contestants because Fantasy Fund Manager is restricted to the FTSE 350, which is the combination of the FTSE 100 and the FTSE 250, the next 250 largest companies by market value after the blue-chip index. So for the purposes of the competition we should seek our big winners at the smaller end of the FTSE 250.
Now let’s think about which sectors are most likely to be home to companies with the potential for game-changing announcements that could send their shares soaring. The ones that spring to mind are miners, oil explorers and drugs companies.
Here a lot can hinge on the success or otherwise of a single project: a mine, an oil well or a treatment for a disease. A big discovery of easily recovered gold or oil, or the success of the trials of a new drug, can transform a company’s prospects and its share price. Among smaller stocks it is not uncommon to see a share price double as soon as a positive announcement is published.
The opposite frequently happens too of course, which makes such stocks dangerous when you invest real money. In our contest, however, you have the chance to win a decent sum if good news is heard and no risk of losing anything if the tidings are bad.
Here are a few of the names in these sectors to be found at the smaller end of the FTSE 250. Diversified Gas & Oil and Energean are two oil explorers, Petropavlovsk, Hochschild Mining and Centamin are miners and PureTech Health, Oxford Biomedica and Indivior are healthcare companies.
A look at their share price graphs shows that all have been volatile over the past year or so and volatility in this instance is of course precisely what we seek, protected as we are from real financial consequences from share price falls but in a position to benefit from rises.
Questor suggests that readers follow some of these stocks. One approach would be to buy the shares of any that are closer to the bottom than the top of their recent trading ranges in the hope that any renewed volatility goes in our favour. Good luck – and remember to invest any winnings in stocks tipped (for real) here!
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.