Thousands of private investors start off with a dream of making millions on the stock market, enabling them to give up the hamster wheel of life and relax in the knowledge that they’ll never run out of cash.
Living the dream?
The harsh reality however, is that the average investor actually underperforms the market by around 3% annually. Even investors who’ve placed their hard-earned cash in some top performing funds can still find they’ve underperformed, not because of excessive charges, but because of moves in and out of the funds – usually at the wrong times.
This isn’t just a factor with funds. Even the most sophisticated investors can sell out of shares after they’ve doubled or tripled. Look at a couple of examples:
- Firstly, and probably one of the most famous UK success stories is online fashion retailer ASOS. £1,000 invested 10 years ago would currently be worth £32,500.
- Second, and probably not so well known is accesso Technology Group. That £1,000 invested here 10 years ago would now be worth a staggering £98,500!
However, as with funds, it’s unlikely that many investors would have ridden the roller-coaster constantly over the last decade in order to reap the rewards that have materialised.
And if we’re honest with ourselves, it’s highly unlikely that we’ll see that same sort of share price growth over the next 10 years – leaving investors to look elsewhere for the stars of tomorrow.
Potential multi-bagger?
So with a view to finding a company whose shares have the potential to make me many multiples of my initial investment I thought that I’d take a look at the developments over at Sirius Minerals plc (LSE: SXX) – a share that often causes much excitement among us private investors.
On 17 March the company released a DFS, or to those in the know a Definitive Feasibility study. It revealed there was indeed a world-class fertilizer business with the capacity for production of around 20m tonnes per annum (Mtpa) with initial installed capacity of 10Mtpa.
As can be seen from the chart below – the shares sold-off – but why?
Buy on the rumour – sell on the news?
As can also be seen from the chart, the shares more than doubled in price in the lead up to the actual report being released. So the decline in the share price could simply be traders locking in their profits and looking to buy back into the share more cheaply as investor interest ebbs and flows as is often the case with stocks such as these.
It could also be put down to the fact that there will need to be a significant outlay in order to access the $15bn net present value (NPV), rising to $27bn on commencement of production. The $3.5bn-plus cost to get the project to the production stage is many multiples of the current market cap of the company. Combine that with the proposed construction schedule, which equates to nearly five years before first production. That means initial production would hopefully start in early 2021 and full ramp-up to the 10 Mtpa production rate would be reached in late 2023 or early 2024. So profitability is a long way off and investors will see significant dilution and the company take on a fair amount of debt.