According to data provided by the London Stock Exchange (LSE), there are currently 1,705 financial instruments on the FTSE available to buy right now. With such a huge number to choose from it can be bewildering deciding which one(s) to purchase.
That’s probably why some people follow the crowd and choose the most popular. After all, if lots of investors are buying one particular stock, it makes sense to copy them, right?
Er, no.
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For this strategy to be successful, it assumes that most have done their research properly and correctly identified a company that’s financially sound. And has sufficient growth opportunities to make its share price rise.
But what if the majority have done no research and the only basis for buying is FOMO (fear of missing out)?
The Dutch tulip bubble of the 1600s is a classic example of this. At one point, a single bulb sold for 10 times the annual salary of a skilled worker. After buying tulips like everyone else, many lost their life savings, once the market crashed. They failed to take a step back and consider whether the bull run was sustainable.
Number 1
London Stock Exchange data tells me that the most popular FTSE share — with a market cap in excess of £50m — is Helium One (LSE:HE1).
I’ve come to this conclusion after comparing the value of trades (£342m) for the first four months of 2024, to the company’s current stock market valuation (£50m). The ratio of nearly seven is higher than all others, making it — in my opinion — the UK’s favourite stock.
Now, don’t get me wrong. I’m not comparing the company’s recent share price performance to the price of tulips in the 17th century. After all, it’s ‘only’ risen by 440% since the start of January!
But, in my opinion, it does appear to be a high-risk investment.
The company’s successfully flowed helium to the surface of its mine in Tanzania. But it hasn’t sold any gas yet so it’s loss-making.
And losses have to be funded by cash which means it has to keep asking its shareholders for more money. Any investment I make today is therefore likely to be quickly diluted unless I participate in future fund-raising rounds.
No timescale has been given for when the company is likely to be profitable. That’s not a criticism from me, it’s just an acknowledgement that nobody can accurately predict this.
However, by volume, helium is worth 100 times more than natural gas. Also, the global market for helium is large and growing. The potential returns are therefore significant.
Past experience
I’ve been badly burned by exploration companies before. I invested in Greatland Gold, the Australian mining company. It’s found gold but has yet to start production. I’ll be honest, I didn’t do my research properly and invested when its share price was close to its peak. I’ve now come to terms with the fact I’m never going to get my money back.
And a look at the five-year price chart shows some similarities to that of Helium One’s.
Personally, Helium One is too risky for me. I genuinely hope that the company is able to start selling gas soon and that shareholders make lots of money. But I’d rather put my cash into a company that’s currently generating revenue and profitable.
