It's all about the Packaging

There comes a time in which a Penny Stock Investor (PSI) must be humbled to realize that some of the shares of the companies he's investing in are literally worth less than the dry, single-ply sheet of toilet paper with which he recently used to wipe his butt.


Penny stocks are.... cheap.

Yet just like the rest of reality, with cheap merchandise from a cheap supplier comes a cheap client-base. Just as one wouldn't expect to see limousines parked outside of a 99-cent store or a tenderized Prime Rib on a McDonald's "toasted" bun, people and the products they use run in the like-minded crowds that stereotype them.

Your peers may be fools, but for the most part they were just victims of their own frugality in an industry that shows no mercy or leniency towards the principle of "getting what you pay for..." And as a result, we PSI's have come together finding our paths and fates intertwined to meet at the dirty Wal-mart of financial exchanges. Here we carry the hopes of finding a sparkling diamond ring for Jenny, to dig through the DVD bargain bin for a cheap fix, or to buy in bulk a year's worth of gum as a proud consumer of quantity over quality. Yet at the root of every shopper's story compiled in the cart that meanders down the aisle, lays the bold truth that a product found here inherently ought to be worth as much as it does in the specialty stores sanctified by those of the Bourgeoisie.

It is a fact that the investing elite does not shop Pink Sheet Stocks.

Included amongst this class are the institutional investors, hedge fund managers, and anyone with the common sense to pin their money to the upper exchanges. In a world in which image is everything and social success requires the conformed opinion of others, the packaging of a product must be attractive in quality. In order to one day include the great amount of wealth pooled by the Investing Elite, the goal of a company's public life must be to attract them. A tight share structure with a low amount of outstanding shares (several million, not several hundred million+), a steady share price, a promising company outlook, audited financials, and positive cash flow are all ideal conditions which add to such attractiveness.

Such companies with the ideal characteristics are difficult to find on the lower exchanges, yet they are qualities for which to be on the lookout. One hidden gem I might guide you towards is this company: Advanced Growing Systems Inc. AGWS's packaging is nice & neat. It should always be the hope to have your company work on its packaging in order to one day be uplisted onto the higher exchanges. When channels close and prohibit your company from being able to obtain such characteristics in the future, consider the long-term prospect of your public company's ability to succeed.

What Makes a Gem? – Comparative Advantage

In world of Penny Stocks, there is nothing more daunting than sifting through the sands of Sinners for the one gem worthy for the investor who follows that Path of the Investment. On the lower exchanges, every company raises their chins a little higher and arrogantly drops over-praised press releases that exceedingly exaggerate the actual state of the enterprise. As if reporting to Saddam himself, finding a real solution in a realm full of hot air becomes a frustrating task to the penny stock investor (PSI), who will often lean on the hear-say & rumors of his fellow peers.

*Baaah* Sheep... Empower yourself & take some logical initiative.

- A savvy PSI yearns to know the company and its competition before making the initial investment.
- A wise PSI will settle for nothing less than an industry-shaking/changing company.
- A successful PSI remains readily aware of every slightest modification to the outlook of the company’s future.

In the end, a diamond in the rough is made of the most basic element on Earth – carbon. Likewise, a diamond in the lower exchanges is made by the most fundamental element of a good business – comparative advantage. Comparative advantages guarantee the eventual acceleration of company progress to a level suitable to take-off from the Pink-Sheet share price gravity that pulls it down.

Three Ideal Questions to Ask:

1) What is it about this company that WILL tackle an unaddressed problem?
2) What is it about this company that WILL ensure continued product demand?
3) What is it about this company that WILL make it excel past its competition?

If you can answer only 1, you might have a company that resembles some shiny glass.
If you can answer only 2, you might have a company that resembles cubic zirconia.
If you can answer all 3, you might have a company that resembles a diamond in the rough.

Weekend WAKE-UP! (PBLS)

Note: "Weekend WAKE-UP!" is an alert for an unexpected update that ought to be discussed prior to Monday trading hours.



PBLS - Phoenix Associates Land Syndicate ($0.0125)

The following PR was released on Friday night, after market:
Phoenix Associates Announces Major Additions


Comments:
Those tracking the company realize the significance of this internal restructuring & expansion. However, I have heard of some people leaving on the fear of dilution (1.75B a/s to 2.5B a/s). As they please, but anyone playing their cards right ought dwell upon the synergy and focus that is being fine-tuned by this company in order to harness a long-term future. In particular, look at the recent additions, and the comparative advantages that PBLS already holds. I will write about this company soon enough. I continue to suspect that this one will dip a little further until more detailed news comes out. Keep a very steady eye on this company over the next few weeks. Play it as you will, but do not forget a base holding.

The Funky Friday Rundown (7/27/2007)

(Note: Every Friday [I do not post on Saturday or Sunday], I am going to do a one-line commentary about the past week on some of the more popular penny stocks listed on Investors Hub. These are NOT recommendations... just some thoughts. )





1) GTEM ($0.21) -- "I love the possibility of this one very long term, but now's not the time and by no means has it been (or will it likely be) smooth sailing."
2) PAIM ($0.0013) -- "Wouldn't touch it with a 20-foot stick... seems like a very tough mining operation to sustain in the Phillipines, but I am silently cheering for its success."
3) SPZI ($0.0135) -- "Sure wish I could try out their product to see if it's everything they say it is. Keeping an eye on this one... far in the back of my head."
4) PBLS ($0.0135) -- "Lower quarterly income than expected, but this one is high on my long-term radar... I think it can go a 'lil lower before getting more"
5) WRNW ($0.0025) -- "As much as I hate oil, I kinda like what I see here... gotta admit, I haven't been watching this one for long though..."






Got a stock you want me to watch? Leave a comment.

Keeping an Eye on the Sinner

Penny Hell exists.

Deny this if you wish, but the majority of the Penny Stocks trading on the Pink Sheets are condemned to fall short and land themselves in the lowly depths of Penny Hell where their share prices rot forever. When a company loiters and is unable to lift itself up through verifiable and exponential company progress, its share price steadily gravitates either from a loss of investor interest or by the inevitable need to dilute company stock to sustain the costs of operation. We’ll call these stocks the ‘Sinners’ because they’re destined for Penny Hell (and also because to ‘sin’ means to ‘miss the mark’ or to ‘fall short’).

Prior to their ascension, every ‘elect’ penny stock was a Sinner at one point. Often the product of reverse mergers, the share price of “new” penny stocks falls drastically as the company dilutes itself in the initial phases or as investors keep a safe distance away until the company has proven itself.

But every now and then, a penny stock is saved by grace as it’s renewed into a viable investment. Typically this will come in the form of a progressive press release that offers verifiable evidence of a strong company future. Take for example the idea that the company signed a huge contract with a Fortune 100 company. Most of the time, it won’t be as crystal-clear as that situation. Perhaps it can be as simple as debt elimination to suggest company profitability on the horizon. Whatever the case, it’s always a good idea to keep an eye on the Sinner, but not yet invest, in order to catch the moment of their Ascension.

As a last note, realize that Sinners can keep on falling for years…. but that the slightest tangible indication of a prosperous future can forever change that stock’s direction. Here’s one recent example of an Ascension, fresh on the minds of many (and I fully concur that ETIM's a good INVESTMENT):

In my honest opinion, here are two more Sinners to keep an eye on for the next few months (possibly years?):

A Tale of Two Sinners <-- this post is located on: Recommended Investments

Dealing with Dilution

In the self-centered world that we investors comfortably call ‘home’, an easy habit is formed by forgetting that contrary to what a company often reassures, its best interest must inevitably reside first & foremost in the well-being of the company before the shareholder. Recall that a company’s primary intention when going public is to raise investment capital that could sustain or bolster business operations. This credible & dangerous threat gives way to one of the most feared terms existent on the lower exchanges: Dilution.

Dilution of the company stock is often the suspect for the share price ‘gravity’ working on the lower exchanges. Indistinguishable from the effect of market forces on a chart, keeping a tab on the present share structure is typically the only legitimate means of detection. Calling the Transfer Agent (T/A) in order to get an accurate and honest count of the current share structure will usually suffice. A bright yellow flag ought to go up behind any company that gags the T/A. An honest company will often be open about its needed dilution, and will then express an optimistic outlook aimed to divert your attention away from the issue and back toward a future valuation.

As a penny stock investor (PSI) it is your responsibility to understand that dilution on the Pink Sheets is typically a necessary evil. A steady rate of dilution (as determined by share structure intervals) is healthy for a company that is progressively making significant strides. A stagnant company that has made minimal progress over periods of time and continues to dilute ought to be dropped immediately. Like a jet on the runway, there must be a set rate of acceleration (company progress) to overcome the Pink Sheet gravity.

On the lower exchanges many penny stocks represent recent start-up companies seeking funds for their bold endeavors. It’s advisable to NEVER invest in a start-up company that is unable to produce highly-progressive tangible progress within a few months. Keep an eye on the company, but never get in right away when you can get in at a lower price down the road. If the company has no unique & distinguishable comparative advantage to its competitors within the sector, it should not even be watched at all. When such highly-progressive tangible progress occurs, cautiously take off the no-buy restraint.

Last of all, always be paranoid and on the lookout for scams. It’s a sad reality that daunts any PSI looking for a solid investment. Ironically, be suspicious of any recent start-up company that does NOT have a steady rate of dilution. Question where it is that they got their financing from rather than assuming a miracle. In such situations, never get caught up with the fantastic news being poured out when there are many loose connections entailed in the story backing it.

The Good Poker Player

The odds are good that you are a poker player.

The fact that you are investing on these lower exchanges of the Pink Sheets & OTC:BB fully express that you are likely to be a risk taker - *shakes fist* you have cojones ! Good for you, I say.... and good for your cojones! Only those willing to take the unlikely chances when others will not bear the hope of gaining lucrative returns on their investments.

But as every good poker player knows, you just can't play every single hand that comes your way. However tempting it may be (because no press release campaign will ever put the company in a negative light), carelessly throwing money down on speculative stock plays within an already highly speculative game is just not smart. The intelligent Penny Stock Investor (PSI) always has a goal & a good read of the current situation. The intelligent PSI always knows his outs, the forms of company progress that can translate into favorable & tangible results. The intelligent PSI also knows how to fold when that end goal becomes fuzzy.


Example BAD hands/stock plays (which represent your reason for investing):

1) Company X has just infiltrated a multi-dollar industry that is expected to grow exponentially
2) Company Y has started researching a new technology that could revolutionize the industry -- (remember development time scales, development costs, & the fact that it actually won't be nearly as effective as planned)
3) Company Z has increased its net revenue several hundred percent over the last year! [even though net income remains negative or slightly moved] -- (this could be ok, but often this is just a facade that expresses a stagnant business, and nothing stagnant company-wise stays afloat share-price-wise)


Example GOOD hands/stock plays:

1) Company X has just announced a specific & sizable allocation of funds for a buyback of the company stock -- (however, be skeptical if the company just began)
2) Company Y has doubled its manufacturing capability to meet growing demand
3) Company Z has just closed a contract with a Fortune 100 company worth $x million -- (specific amounts & external confirmations from reliable sources are very hard to find down here)

Believing the Story

"To BS.... or not to BS.... THAT is the question."


Life on the lower exchanges often involves important financial decisions based on the moral integrity of others. They say that trust is hard to come by in the world we live in, and never could that reign more true in this cellar world of subterfuge where deception is masked behind the innocent vale of non-disclosure. When it comes down to the one essential question that matters the most, the penny stock investor (PSI) must ask himself but one simple question:

"Can I trust this company?"

Verifiable truth is a hard to come by commodity for any company on a stock exchange, but it is particularly true down here on the Pink Sheets and the OTC:BB. Many of these companies are born of humble origins, often no bigger than a 2-man operation pretending to be bigger than the garage they work in. Masking terminology like: "the company," "the Investor's Relations department," "management," etc. etc. are often group-oriented words used to provide the deceptive impression of a much bigger organization.

Press Releases are also typically filled with loaded words to capture the emotional aspirations of the PSI's ambition. Once too often we'll see companies talking about their multi-billion dollar industries that they've just now penetrated. Perhaps this number is precise and supported by a lot of clear details concerning this external fact. Yet as a basic, general rule of thumb: If the details are broad and/or not directly descriptive of the operations of the company, the company is likely fluffing the pillow of the BS it lays upon & had little to share to its suckers... *ahem*.... I mean investors.

However, when the time comes and the rubber hits the road, there will never be an easy template to discerning the truth in each unique situation. The only thing thing we have to go on is reasonable belief, and that belief must always, ALWAYS be in line with the understanding that the company will have a unique competitive advantage in its industry to one day become successful. Treasure "hard" evidence like videos, photographs, and first-hand experiences that piece together an impression of what is going on with your company. Whenever possible, be the one to commit yourself towards getting that evidence. Be skeptical about opinions given by people attached to the company.

Never get caught up in emotion. Always ask yourself twice why it is that you believe what you believe? Can you independently verify the external evidence? A well-oiled-machine-of-a-company will begin to trace a map of external evidence along the course of its progress. Reasonable belief is only built upon the pillars of external confirmation.

How strong is the foundation of your company?
Can you believe their story?

The Funky Friday Rundown (7/20/2007)

(Note: Every Friday [I do not post on Saturday or Sunday], I am going to do a one-line commentary about the past week on some of the more popular penny stocks listed on Investors Hub. These are NOT recommendations... just some thoughts. )






1) INXR ($0.0007) -- "Doin' it like a Stuka Dive Bomber... Care to guess the O/S or would you rather educate yourself here?
2) SLJB ($0.01) -- "Hope floats, especially when the company doesn't. I wouldn't write this bad boy off just yet... but maybe you should."
3) ETIM ($0.0048) -- "I'm just dying to see this one go below $0.004.... C'mon, Daddy wants in!"
4) PNMS ($0.0017) -- "Seems too good to be good, but here I say it's all good when things aren't good. The BS meter spiked, but even the Man can't make up lies this verifiably good..."
5) GBDX ($0.01) -- "Still driving in the fog with broken headlights, but something tingles like champagne bubbles. Are those stronger hands taking up the shares or curious buyers?"





Feel free to toss me a bone by suggesting some pennies for me to observe. =)

The Investment vs. the Trade

The typical penny stock investor (PSI) brings with him a general understanding of how the upper exchanges work, an impatient ambition for quick gains, and the misconstrued conception that he knows how to "go long". The PSI tells himself that he's here to invest, when in all honesty he's here for a trade. Allow me to fully differentiate these two concepts.

the Trade:

The trade is the impatient man's tool of buying low and selling high within a short period of time. The trade's time period could last from intraday to a few weeks, just enough time for a press release, or a few PR's, to come out and embellish the company's "amazing" progress. In actuality, so little time has gone by that the company probably hasn't made many strides at all. Therefore, the Trade's success isn't as much reliant upon the company as much as it is the investor's own luck to call the bottom, or by his ability to read charts well enough to use his "skill" in predicting the bottom based on company performance. While this method can often have its success, like gambling, the house will tend to come out ahead due to the prolific gravity existent on the lower exchanges. The outcome being... two plays down, one play up (but due to the impatience of the PSI, that up-play is typically pulled too early). Some people can stay afloat in this. Typically, the Trade is done on any stock because true investments don't come around that often....


the Investment:

The Investment is the extremely patient, well-researched, well-thought out trading plan of a hardened investor. Only those who could get kicked in the nuts and not grimace, dare choose this strategic financial path. Warren Buffet was one of those men. The Investment's duration could last anywhere from a couple of months to a couple of years. There is a reason why people don't choose the path of the Investment down here on the lower exchanges. Aside from their own impatience, the path is also scary... very scary. The investor's tool throughout this path of the Investment lies entirely on his "skill" of seeing how present research validates a significant and foreseeable future. Much of the time will be spent in the red due to the existent gravity. But unlike the Trade, the Investment is more selective on which horse to bet on. More importantly, the Investment is entirely reliant upon the company's own progress rather than the perception of people.




Observation:

The PSI is a funny being, however. He likes to trick himself. He's such a funny guy, you see.


Often, the PSI enters into a stock thinking he's investing but internally sets his clock on trade mode. He wasn't entirely looking into the company he was investing in order to answer all the tough questions about the company's future (or noticing if it was even able to be discerned)... he was more intrigued by a single piece of news or an attractive event. Even more so, he likes to pay attention to the stock price (more or less a measure people's opinion of the stock) rather than the effect of the current news on the outlook of his company's future. But here's where he gets funny, you see..... Get this. Midway through his trade operation, he'll often switch from the path of the Trade to the path of the Investment!! He'll rationalize the news... that is, now that he's a strong man *grr* a "dedicated long."

"Sorry! No can do, Sucka!!"

Only the "elect" stocks can be reserved under the path of the Investment. The rest eventually go down to Penny Hell, just as they're inevitably meant to do. In the end, maybe he got lucky & chose one of the "elect"... but the odds are highly against him given the feces level that tends to muck much of the Pink Sheets.





Allow me to end this post with clear intentions & a few notes:

1) Here with Investing Pennies, it is my intention to show you how to invest, not trade.

2) Down here on the Penny Exchanges (aka lower exchanges), it is absolutely IMPOSSIBLE to invest in just ANY company. The company must have the ability to endure Penny market conditions, and more importantly be able to offer distinct comparative advantages that allow it to be a significant competitor in its respective industry.

3) I want to be explicitly clear that it is OK to choose either path (whether of the Trade or of the Investment), but is it NEVER okay to believe that you can freely change from the Trade into the Investment. Whatever floats your boat. For me, success doesn't come via the path of the Trade.

4) It is also OK (& smart) to flip some shares if you're in the middle of an obvious spike when you're going down the path of the Investment. The main idea to keep in mind is that you understand the situation that's going on around you and that the future is relatively clear, even when it means knowing when something is overvalued at the present time.

5) Last of all, I want to direct your attention to one of my favorite penny stock INVESTMENTs that I just wrote a complete overview about at my Recommended Investments page. Here's the direct link to the article: "I'm a link. Click me, baby!"

Falling for the Trap - Share Price Fundamentals

Oh how sweet is the aroma of a low-priced-rags-to-riches public company that dangerously totters on the lower exchanges! Don't you just get the tingles for that undiscovered gem, hidden ever-so-lightly beneath the steaming piles of crap that smear the prestige of the Pink Sheets? Well remember this before any course action, my zealous friend:

Always do the MATH first! Find it's true market value.

Low share prices are the bikini coverings that allure impractical investors we here will call PSI's (Penny Stock Investors)! They ticket the first impressions of a company, freshly imprinting themselves upon the observer's mind. A low share price is so effective on the human psyche that our equity trading system incorporates the concept of the "stock split" as part of its operational infrastructure. It will do you good, however, to remember that in trading penny stocks the low share price is often nothing but commercialism. Ignore it, or more importantly keep it in proper perspective with the share structure. For unless you plan to refinance your student loans or willingly open up another equity line of credit, there is no room to speculate poorly when you could intelligently invest.

Recall that the value of a company on the market is best understood through its market capitalization (outstanding shares x share price). A company with 1000 outstanding shares worth $5 each is entirely equivalent to a company with 50 shares worth $100 each. Both have a market capitalization value of $5000. It's this little piece of basic knowledge that continuously slips the mind of the PSI time and time again.

The attraction of the Penny Stock will always inherently be the fact that is indeed worth mere pennies... (often, not even). It is the most basic trap of the impractical investor known as the PSI. Yet, let us be honest to ourselves... we still find ourselves here in this territory we call the Wild West! Bear in mind that most PSI's allow this fact to slip past their minds in light of favorable news. Don't follow the crowd on this one. Always know the valuation of your potential investment. One notable example of this blunder can be found on my Recommended Investments page (posted on July 18, 2007) However, always remember that a company's low share price means ABSOLUTELY NOTHING without knowing the share structure entailed.

Too often we hear comments like:

-"Why isn't this stock rising when its only worth $0.____??"
-"What a steal, this stock's only at $0.____!!"
-"What a piece of crap, the stock's only at $0.00__!!"

But be strong, emotional one, over there in your Alamo we call rationality. Mentally train yourself to filter out such verbal crap. Always be in the know, never swayed by unfounded opinions. There isn't a lazy soul out there in the investment community that doesn't know the share price of a given company... but it is knowing the vital share structure information that segregates the competent & able-bodied investors from the sickly-dimwitted that need go back to the University of Phoenix.



Consider the following suggestions:

1) NEVER get into a company without having a relatively good idea of it's share structure.

2) Be suspicious of any company that silences it's Transfer Agent. What have they to gain by hiding this information?

3) Continually verify over time the amount of shares outstanding. Dilution is often an essential tool for companies on the lower exchanges.

4) Make note of investors that flare thoughtless share-price-based comments and lower your regard for their opinions when they're hosting reviews of company progress.

Understanding Your Social Environment - Peers

Your peers are fools.



Well, most of them at least... and sadly this often may include both you & me. Your fellow investors are out to make a quick buck. The average Penny Stock Investor (PSI) is a greedy & ambitious fool who just wants that one uptick on these lowly exchanges of the Pink Sheets & OTC:BB in order to realize a greater percentage on his investment than he would've on the elevated safe-havens of the NYSE, NASDAQ, & AMEX. While there is nothing wrong with this strategy, I only mention this in order to hone in on the precious optimism that serves as his motivation to committing capital to his cause. In particular, there is an imbalance in judgment when he wagers possible gains to possible losses to each committed investment - he's blindsided by the future effect of his negative sentiments in light of his current optimism.

Why this is important is due to the environmental conditions of the exchanges we operate on. On the upper exchanges, there is a significant enough population that invests and holds onto their investments for long periods of times (months to years). On the lower exchanges, this represents the minority of shareholders. Most shareholders of PK (pink sheet) companies are ambitious, anxious, and ready to pull the trigger. As a result, and combined with much scarcer population, we daily have volatile swings of the ticker where 5-15% shifts are commonplace. That's great if they're green shifts... but severely demoralizing when they're red. Whats even more frustrating is the existence of gravity on the lower exchanges. PK companies are typically driven by press releases. Lulls in-between result in share price gravity as the ambitious impatient bail out for "happening" plays. The snowball effect soon comes into play only to be softened time from time by chance or by absurd valuation or by another positive press release.

As a result of these environmental conditions, the once optimistic PSI normalizes back into his rational self the very first time he sees red instead of green. Suddenly there's a limitation as to how much he's willing to lose. 30%? 40%? The weak will get out. The strong will endure. Neither or both decisions made could be considered the wrong decision in the end... but in making that decision, the PSI forsakes pure rationality and instead clouds it with the one thing that ought NEVER EVER EVER be applied to trading stocks: Sentiment.




Common Mistakes of Fellow PSI's:

1) Considers the money amount of his portfolio as his current balance. You never lose or gain until you sell.

2) Considers the operational environment of the lower exchanges to work the same as the upper exhanges. Not true. There is share price "gravity" working on the lower exchanges. If upper exchanges go down 1, up 2, down 2, up 3 (or something along those lines), lower exchanges go down 1, down 2, down 4, stagnant, up 7.

3) Considers the gains, before the losses. The common perspective of the PK's is that: "It can't go much lower than this..." Unless the stock is at $0.0001, there is always room and often strong likeliness for significant drop!

4) Often not prepared to lose everything. Like poker, every investment on the PK's must be treated like an 'all-in' in poker. This is not to say that a doomed stock must be held onto until the end, but that every investment must be managed according to reason & research... not emotion.

Introduction

The way to make good money in trading stocks is not by following the crowd. I believe it is only fair to say that Warren Buffet himself would not have been as successful as he is today had that been the case. Nevertheless, investing in companies that are on the upper exchanges (NYSE, NASDAQ, AMEX, etc) already coerces the individual into a marginalized situation, in which he must choose between one established company and another, both which have long since been known & by the masses. Opportunities in these markets are scarce and significant gains are compromised.

Alternatively, there are the PENNY STOCKS. Here we typically find considerably newer companies, most of them unknown to the average investor. Many of these companies have gone public via reverse merger of former bankrupt shell companies. In theory, these are the companies that have the potential to offer the greatest return to the ambitious investor.

However, this is where the fantasy ends and reality begins. The OTC:BB and the PINK SHEETS are no place for the amateur penny stock investor. In a land where corruption is rampant, press releases are propaganda, and dilution is prolific, greed leads to lies and financial portfolios gravitate to the bedrock bottom. In this realm, the investor is thrown into the Wild West as just another gold-miner condemned to network amongst the worst of people for privileged information. It is dangerous. The stakes are always high, yet the rewards could be worth a lifetime.

My blog is built around the experience I have learned (and daily continue to learn) to survive the life of a Penny Stock Investor. I come in with the belief that there are legitimately undervalued public companies that inevitably will one day be recognized and accepted to the larger investment community. I welcome one and all, who realize the dangers present, to join in this adventure with me.