Investing in Penny Stocks (The Ride/The Results) by an IgnoramusMay 23 '08 Write an essay on this topic.
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The Bottom Line This is a cheap stock investing article.
Greetings, from an Ignorant Investor I know very little about the stock market, the lack of in depth investing terminology used in my writing will quickly reflect this to anyone who is in the business or just plain knowledgeable. This article has nothing to do with IRA or 401K retirement advice, common sayings like “Don’t put all your eggs in one basket”, or what you personally should or should not do. Consider this writing to be: An ignoramus sharing his experiences with you, for better and for worse. I personally would not recommend doing what I did to a friend or family member because of the high risk, even though I have benefited to this point. If you get the urge to venture into the stock market (particularly cheap stocks), realize you can lose your shirt. Please don’t use any income necessary to pay your bills and don’t think you will become instantly wealthy. I went into the game thinking: ”If I lose every last cent, I’ll still be financially stable.” Defining Penny Stocks Under $1 and it’s a penny stock, no wait… The SEC broadened the definition of Penny stocks to under $5. Investing based websites may mention Pink Sheets or OTCBB related stocks with limited capital. I want to go to sleep right now just thinking about defining Penny Stocks. My definition of Penny Stocks is affordable stocks with high risk. Key word: Affordable, Key word: High Risk Specifically, stocks I can afford to purchase 100, 500, or 1000 shares. Let’s just roll with the word “cheap stocks” from here on. The Drug Leading to Addiction The real draw to cheap stocks is simply the “boom effect”. Real Example: I own a cheap stock which gained 17 cents in one day, I own 900 shares of it. 900 shares times $0.17 = $153.00 gain This is an extreme example: 1 day, 1 stock, best I have noticed. Stocks go up and down all the time. To be fair, my worst real life example: I invested $110 about a month ago in a company (100 shares @ $1.10 per share) which is now @ $0.43 per share. That particular investment is now worth $43.00 equaling a $67.00 loss. My Setup I use the free MSN Money Investment Tracker to monitor my stocks. This tracker shows delayed quotes (at least 20 minutes) and can be customized in multiple ways. MSN also provides real-time quotes (NYSE & NASDAQ) for free. Requirement: the registration of a Windows Live ID and license agreement acceptance to obtain real-time quotes. Requirements are free and painless. The Goal In my world, there are two hurdles involved with cheap stocks, overcoming investment fees (commissions) followed by profiting. I pay $9.95 per each Market Trade with Sharebuilder.com (An ING Direct owned company). Cheaper brokers abound but I’m familiar with Sharebuilder, trust this company, and can easily screen cheap stocks. The “Basic” program suits me well. Choosing Stocks Here is my ignoramus checklist for choosing/purchasing cheap stocks (100% created by me): 1) Under $2/share at time of purchase. 2) Currently trading at the low end of the 52 week high/low spectrum. -2a) Ex: “XYZ” stock: past 52 Week High $5.00 / past 52 week low $1.00 / Today’s Price: $1.20 per share. 3) Analyst(s) recently evaluated the stock as a “Hold” or preferably a “Buy” or “Strong Buy”. 4) The stock has some volume. -4a) Volume simply meaning it’s being purchased and/or sold. More than a few cheap stocks list pathetic volume numbers or “N/A”. 5) The stock has recent news associated which gives me hope. - 5a) News can be difficult to read into sometimes for an ignoramus like myself. 6) The “ 1 Year Target Estimate ” is at least 3 times higher than my purchase price. - 6a) “XYZ” stock purchased today at $1.00 per share, projected to be $3.00 per share in 1 year. 7) Read the “Company Profile”. What is the company business? Agriculture? Biotech? Clothing? Etc. - 7a) I won’t say one industry is better than another, but I try to reason said company has potential or not. Obtaining above listed information is easy on a per stock basis. Checking multiple stocks and throwing money at them may become time consuming. Once I make my decision and pull the trigger I hawk that particular stock. I’ll watch the ups/downs on my stock tracker and check for recent news. WARNING: Cheap stocks have the potential to “Delist” meaning they are dropped from their respective market for non-compliance of rules. A delisting will be in the news, prior to stock actually being delisted. Example: NASDAQ requires stocks to trade at $1/share or above. Continual failure to do so over a given period of time may cause a delisting. NASDAQ will inform the given company prior to delisting and will provide a date. A company can inform NASDAQ of restructuring to meet compliance and buy time, if accepted. There are plenty of stocks currently listed and valued under $1/share within the NASDAQ market. I invested in one of them and have profited nicely so far. Obtaining Checklist Information First I use the Sharebuilder stock screener to find stocks between $0 and $5 (lowest amount configurable) Next I scan the returned results for all sub $2 stock symbols. I view the volume reported in Sharebuilder screener. I insert the stock symbol into Yahoo Finance website to obtain all remaining previously mentioned checklist info. If I like what I see, I still look around at other stocks I like until tiring of battling with myself and finally buying. The Results ---------- The Winners: ---------- Market: NASDAQ Symbol “ACUS” 900 shares at $0.35 per share in March 2008 = $315 plus $9.95 commission = $324.95 5-22-08 Closing Price: $0.62 times 900 shares / $558 = $233.05 profit. Approx: 71% Profit Market: AMEX Symbol “AFT” 980 shares at $0.34 per share in March 2008 = $333.20 plus $9.95 commission = $343.15 5-22-08 Closing Price: $0.78 times 980 shares / $764.40 = $421.25 profit. Approx: 123% Profit Market: NASDAQ Symbol “AERG” 103 shares at $1.63 per share in March 2008 = $167.89 plus $9.95 commission = $177.84 5-22-08 Closing Price: $2.00 times 103 shares / $206.00 = $28.16 profit. Approx: 16% Profit ---------- The Losers: ---------- Market: AMEX Symbol “ISV” 485 shares at $0.62 per share in March 2008 = $300.70 plus $9.95 commission = $310.65 5-22-08 Closing Price: $0.59 times 485 shares / $286.15 = $24.50 loss. Approx: 8% Loss I sold this stock, it wasn’t doing much over the span of a few months. Market: NASDAQ Symbol “CPBR” 100 shares at $1.10 per share in May 2008 = $110.00 plus $9.95 commission = $119.95 5-22-08 Closing Price: $0.43 times 100 shares / $43.00 = $76.95 loss. Approx: 64% Loss I sold this stock, I was losing money fast. ---------- The Result: ---------- $1,276.54 invested in cheap stocks. $1,857.55 as of market close 5-22-08 $581.01 profit in under 2 months (First purchase was late March 08) . 45.51% Total Profit. Vastly superior to a checking or savings account interest rate! Things to remember: I am an ignoramus and openly admit. Stocks go up and down all the time. I lost and I won, yet mostly won. I won’t be held accountable for any investment decisions you make if you get an itching feeling after reading this. You can track me, I listed all prices (sold the losers, will reinvest in new stocks). As I submit this posting I am checking my stock tracker now and looking at early morning results: $17.06 loss. Update: $32.22 gain at market close 5-23-08 (since 5-22-08 market close). Like I mentioned, stocks go up and down. Today's variance was almost $50 from morning to end of day, considering I only peeked a few times. NASDAQ - Lost $19.91 DOW JONES - Lost $145.99 ME - Gain $32.22 © nonedude  |
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