THE ridiculous rise and fall of AIB and Irish Life & Permanent's share prices has become something of a running joke on the stock market in recent months as traders cackle that "AIB is up 20pc for absolutely no reason" or "some lunatic is off buying IL&P again."
The reason for their derision is simple. AIB's market capitalisation is a ludicrous €60bn or €70bn -- depending on what acrobatics the share price has been doing on a given day.
IL&P's stock-market valuation is a rather more reasonable €1.7bn, but with 99.8pc of it owned by the Government and massive uncertainty hanging over the group's future, it's hard to see much intrinsic value there that you could bet the house on.
But the widespread derision towards AIB and IL&P investors is misplaced because it is based on a fundamental misunderstanding -- you don't have to be insane to buy AIB's shares, you just have to believe that the market is insane (and that you're smart enough to beat it, of course).
Over the last few months, the market has proved to be positively certifiable, After that, it's down to the skill, nerve and risk appetite of the individual investor.
And the potential gains are huge. Take AIB. On January 25, AIB shares were changing hands at 7.5c. A month later they had risen to about 13c, leaving the much-mocked investor who bought in back in January up about 73pc in just four weeks (an annualised rate of more than 700pc).
That's a paper profit, of course, not a real one, and it's very unlikely that anyone managed the neat trick of getting in at the very bottom and getting out at the top.
For one thing, thin volumes typically restrict a good exit once you get into penny-stock territory, plus you'd have to be nigh on clairvoyant to predict some of the movements.
Interestingly, though, 'big-volume' days on AIB don't seem to be pushing the share price down. On February 22, for example, 10.5 million shares changed hands (about 10 times average volumes over the last year) but the share price stayed close to its recent high at 13.3c.
That suggests there is a way to get decent volume out of the stock at decent prices.
The other barrier to daily trading for speculative profit is execution fees. But these aren't as prohibitively high as you might think. Some low-cost outfits will let you enter and exit at €100 a pop. Put in €10,000, get a 20pc uplift and you'll end up €1,800 ahead.
IL&P is a similar tale of volatility. Double-digit share-price movements are a thing of the norm (down 20pc on February 16, up 39pc the following day) and volumes traded fluctuate wildly (6.5m shares on December 21, 125,000 shares on February 13).
The life insurer does seem to be harder to get out of on a good day, though, with extremely high volumes typically (though not always) occurring on low-price days, suggesting an element of sanity in an otherwise insane market.
AIB and IL&P represent the extreme sports end of penny stocks -- the probability of implosion is spectacularly high and for the most part the stock's share price lacks even the hint of a fundamental basis.
There's a certainty that the music will one day stop and you'll end up with nothing if you're not smart enough to get out in time.
For those who like their investment risks on the saner side of things, there's always the other penny stocks, where prices are volatile but the core investment basis is more sound.
Take something like Ormonde Mining. Its share price is typically in the 10c range, which means a 1c fluctuation is a 10pc gain. Or Conroy Gold & Diamonds, where recent trades have been in the 3c to 5c range.
The ironic thing about preferring the 'traditional' penny stocks over the banking ones is that their trading volumes are much lighter -- some days there's no trading at all -- so the capacity to get in and out at a time of your choosing is more constrained.
Whereas AIB and IL&P, despite having a free float of just 0.2pc, have never had a single day of zero trading volume -- another testament to an insane market, satisfying test one of the investment thesis.