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.