Social Media & Market Advantage

Here’s the problem with small caps — including those in the junior resource space. 

There is very little quality analysis of any of them. 

Generally, companies will pay a broker or boutique research house to provide a report with a price target, and that’s about it. Obviously, these fall into the category of marketing rather than independent research (for clarity, we here at MININGAIM also take payment from companies to promote their interests if we feel they are decent opportunities), and therefore it’s really hard to know whether an investment is any good or not.

This isn’t a critique of brokers, who are earning a living. It’s simply that when you only have one broker producing a report — rather than multiple analysts with contrasting opinions, then it’s a problem. Blue chips, by contrast, have multiple independent analysts providing all sorts of unique perspectives that make research easier - and crucially - you will get both bullish and bearish opinions.

And after several years of junior price targets never being met as share prices continually fall from when initiation notes are released, investors are understandably sceptical.

Of course, there is often some fantastic information in these notes. But the real problem is that generally small caps get one note out and so you can’t compare them. The other issue is that brokers are struggling to justify staying in the business — most recently, Zeus Capital bought the capital markets division of WH Ireland for just £5 million — and the reasoning is simple. 

There’s not enough money in it, compared to equivalent level work. This is also a problem because it means you will see brokers promote companies they don’t believe in simply to keep their own lights on. 

Now there’s also PR services ranging from the formal (like St Brides Partners) to the informal (for example, StockBox and Roast PR etc). In the case of a service like St Brides, it’s a comprehensive PR/IR package — while the likes of StockBox is investment agnostic and platforms any listed company. But these are again going to be 'biased' views...because the companies being interviewed are paying the bills.

So where do you go for informed views? While not advice, MININGAIM is selective in our coverage, and we genuinely only cover companies that, as part of a wider portfolio, and will hopefully generate a decent return. I also strongly believe that the work here is of a very high quality, but again, I can completely see why we can't be seen as 100% impartial.

But there are places where you are going to get completely unrepentant, subjective opinions. Generally Twitter (X) and Telegram — where there is no regulation, no fact checking, and everybody remains out for themselves. This is something to remain aware of: while broker notes and PR services are attempting to highlight the positives, on social media, it's usually a bloodbath of traders attempting to make their 10% any way they can.

On Twitter, Telegram, and cesspits like LSE (we include the accounts linked to this site), the waters are significantly more blurred. Sometimes a private investor genuinely thinks an opportunity is excellent — sometimes they want you to become their exit liquidity, and sometimes they’re being genuine in their opinion. It’s also worth noting that fundamental, technical and sentiment traders may all agree or disagree on a stock but are using different data and timelines.

If you plan to make a five year investment, don’t listen to the guy with a new stock to pump every other Tuesday — likewise, if you’re hoping to scalp 5%, it’s maybe not best to consider a multi-year investment case.

But social media has one massive advantage over traditional media: it’s fast. Midday RNS out? It’s been dissected on Twitter within three minutes. Government leak? Telegram knows long before the newspapers do. Share price behaving weirdly? Someone out there knows why.

You do need to decide what is fact and what is manipulation, but the bottom line is that being in the right groups, or connected to the right people, will give you a speed advantage over other market participants.

The other thing to consider with Telegram and WhatsApp chats is that single stock groups tend to form an echo chamber of positivity, but you can also find analysis and information that won’t be readily available elsewhere. Generalised chats covering the entire market means you can compare companies with each other, and see bulls and bears argue the merits and pitfalls in real time, but by their nature go less into depth on specific companies.

Of course, if you really want to make a significant investment, do your own research. But be warned, it takes a long, long time - and having access to a combination of broker notes, informal services and social media is going to make it much easier.

- Charles Archer, 23/7/24