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.