Dodging the Head-Fake

There’s nothing like a good game of pick-up basketball with some friends on the local courts to feel great throughout the rest of the day. That is… unless you look like a fool on the courts. Sometimes, all it takes is a simple head-fake to mean the game as it catches you off-guard, committed, and vulnerable to the offensive attack.

In many ways, the Penny Stock Investor (PSI) will also find himself in such situations as shady companies throw head-fakes through their misleading press campaigns. Often this can lead to a game-over scenario by the time investors catch wind that something fishy is going down. Some companies will promise high quarterly growth rates and others will introduce promising technologies and markets. In each case, the goal of the company is to lead the investor into believing that the best time to invest in the company was yesterday. Inevitably, there is enough half-truth existent on the Pink Sheets to keep both the optimist and pessimist satisfied customers on the hopes of promising futures.

Learning to read a head-fake takes practice, but a practical step towards avoiding one can be as simple as finding safer investments that are easier to be confirmed externally. Some suggestions for “safer” investments:

1) Avoid the finance companies – bank loans, mortgages, credits, etc. If the company only deals with numbers (and lacks a hard manufacturing product), it is also more difficult to confirm the truth of the company words.

2) Selectively avoid the high-tech’s – Unlike the finances, the high-tech’s (companies that offer amazing technologies that can change their industries) are only to be avoided if they are unable to produce revenue within a short period of time (less than a year). If they’re still developmental, gaining acceptance and clearing regulations are road-blocks that hinder and handicap the company as a viable immediate investment.

3) Avoid the under-financed companies – Companies that will require larger expenses in the future will require larger cash flows if the initial financing is not in place. While this is typically difficult to discern, there is some good-judgment to be made regarding an expense model outlook. Under-financed companies will resort to diluting their stock when the need for cash arises.

4) Avoid the start-up company – Simple as that. Too much pain straight off the bat, way too little gain for a long time coming.