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Those Who Purchased Aus Tin Mining (ASX:ANW) Shares A Year Ago Have A 91% Loss To Show For It

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Even the best investor on earth makes unsuccessful investments. But it's not unreasonable to try to avoid truly shocking capital losses. So we hope that those who held Aus Tin Mining Limited (ASX:ANW) during the last year don't lose the lesson, in addition to the 91% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. Even if you look out three years, the returns are still disappointing, with the share price down88% in that time.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for Aus Tin Mining

With just AU$60,854 worth of revenue in twelve months, we don't think the market considers Aus Tin Mining to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Aus Tin Mining finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Aus Tin Mining has already given some investors a taste of the bitter losses that high risk investing can cause.

Aus Tin Mining had liabilities exceeding cash by AU$5.4m when it last reported in December 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 91% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Aus Tin Mining's cash levels have changed over time (click to see the values).

ASX:ANW Historical Debt May 9th 2020
ASX:ANW Historical Debt May 9th 2020

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

While the broader market lost about 11% in the twelve months, Aus Tin Mining shareholders did even worse, losing 91%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 27% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Aus Tin Mining is showing 7 warning signs in our investment analysis , and 4 of those are significant...

Aus Tin Mining is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.