How to buy shares in the Frontier Tech Investor portfolio
11th May 2016 |
We’re hard at work preparing next month’s issue of Frontier Tech Investor. I’ll tell you more about it as I get more details.
Ahead of that, I wanted to briefly mention a query a few readers have emailed me about regarding how and where to buy some of the shares in the Frontier Tech Investor portfolio.
I know that some of the shares Eoin recommends are a little trickier to buy than “regular” large cap shares. That comes hand in hand with investing in breakthrough technology – we’re looking at shares that aren’t well known and aren’t always easy to buy.
If you’re having difficulty, try calling your broker directly. Often a smaller share listed in America or Japan (for instance) isn’t available to buy online, but your broker will be able to buy for you over the phone.
It’s also worth noting that often as the number of people trying to buy a share increases, a broker will make that share easier to buy. So it’s always worth calling in.
For what it’s worth, I know several readers have had success buying the trickier shares through TD Waterhouse and Hargreaves Lansdown.
Failing that, I spoke to MoneyWeek magazine’s Cris Heaton – who is something of an expert when it comes to this kind of thing. He mentioned two other brokers to try. One is Interactive Brokers – which has an excellent range of shares but perhaps isn’t the easiest platform for beginners to use. The other broker to try is AJ Bell Youinvest. They’ll trade Japan over the phone, for instance.
Further to that, I thought I’d share an exchange between a Frontier Tech Investor reader and Investment Director Eoin Treacy. That’s because it addresses issues that I think matter to everyone.
The letter I received – to nick@moneyweek.com – was this:
As a subscriber to Money Week and associated publications I have now read a great deal about this company and, in particular, its prospects. Interesting stuff, and tempting with it. However, none of the commentary touches upon the fact that this, being an OTC stock, is in a market place which is at best very lightly regulated and, at worst, not regulated at all. Consequently it is not easy to find a broker who would be prepared to recommend purchasing the stock and it is difficult to see how one can easily keep tabs on any investment once made. Furthermore, I understand that in this market the market makers themselves will control the price of the stock at any one time, a fact which could make a future sale a problematic issue
Would someone please address these points and the risks inherent in them for the benefit of a potential investor such as myself?
Eoin, in turn, replied with this:
Thank you for raising an important point and one that is sure to be of interest to other readers of both the free and paid services we provide. Over the counter (OTC) markets are used in foreign exchange, fixed income and in smaller equities because on the margin there is always a bargaining element to price discovery. In other words you can call a broker and negotiate a rate depending on the size of your transaction where the spread you will pay and the rate you receive will vary somewhat from what is quoted on the open market. Dark pools, which now account for a substantial quantity of equity trading, fulfil many of the same functions for equity traders and funds.
For smaller companies, and particularly those with emerging technologies, the equity market is often the only source of funding they can access. It is worth pointing out that both bonds and bank loans are generally cheaper sources of funding than equity but many emerging companies do not have the history of income and tax returns necessary to access them. For small companies an equity listing helps to raise their profile and gives them access to the capital necessary to commercialise their products.
As you point out the equity market and particularly the OTC market are less well-regulated than companies which maintain full listings. However, it is also worth pointing out that it would inappropriate to hold a small evolving company to the same set of standards and regulatory expense as a much larger company. The OTC market exists to give small companies the chance to develop into larger companies and not all succeed.
You will notice that when we talked about SolarWindow we put it in our “moonshot” category. There were two reasons for this. The first is that the story of turning high rises into power plants using spray on solar cells is truly revolutionary and has potential to act as a game changer for the entire energy sector. However it is a moonshot because the technology has not yet been fully commercialised and therefore it represents a risk that they will fail to achieve their goals.
With a market cap of just over $100 million liquidity could be an issue. The potential for dilution when the company eventually comes back to the market for additional capital is an additional risk. That necessitates if you engage with this kind of opportunity you do so only with a small portion of your wealth. Evolving technologies have the potential to do wonderful things but you need to go into such opportunities with your eyes wide open that your capital is at risk and you might not be able to sell at the price you want. That is why it is a moon shot. There is high risk but there is also high opportunity.
That’s all for today.
Nick O’Connor
Publisher, Frontier Tech Investor
