Investing Pennies

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2008-03-16T00:55:00.000-07:00

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Long-Term Penny Stock Investments are Tradable

2007-10-12T14:50:00.000-07:00

For an experienced investor on the upper exchanges (NYSE, NASDAQ, AMEX), understanding how to invest on the lower exchanges of the OTC:BB and Pink Sheets takes a level of adjustment not uncommon to career changes. Too often an investor is brought into the lower exchanges by the tempting intrigue of higher returns. More than not, they carry the misconception that the factors analysts use on the upper exchanges are applicable in the lower exchanges. Yet down here, there is no compliance to industry averages, relative P/E multiples, or progressive indication through forward split notifications. Volatility exists because investor sentiment is both cautious and variable. The very trading system itself is often put into question (naked-shorting).

Therefore, a statement such as “long-term penny stock investments are tradable” ought not to be perceived as an oxymoron. Statistics will show you that investments held over the course of years often far exceed the profitability of short-term investors who habitually cash out at meager single profits. On the upper exchanges, I would tend to agree. On the lower exchanges, the additional risk would make this a foolish course of action. The hidden gems on lower exchanges will appreciate overtime, but they will also react on a consistent basis.

The concept of the game is simple. If one of your horses doubles up, consider dropping a half of your holdings. If it triples, consider retaining a third. If it quadruples, consider retaining a fourth. Etc. Learn to exercise patience. Do not feel obligated to recover your holdings right away once the profit’s been secured. Ideally, you will want to get back in and recover your holdings after a given amount of time. It is ill-advised that you reinvest your profits into the company, but rather make it your aim to recover what you sold & to retain those profits. Also, beware of becoming a day-trader. Realize that actual company progress must be the sole catalyst for your flip-trading tactics. Tangible company progress takes time. The following company is one of my favorite penny stock investments that illustrated a textbook scenario:

Industrial Nanotech

Notes:

Notice that while there were three very clear sell periods that ought to have been easy to spot by an investor who has followed the company’s stock, there was only one clear buy period. I state that this was a clear buy period because of the stiff resistance to break the floor. All other periods after the clear selling points were more volatile in nature, and offered little indication to get back in. Nevertheless, an investor that believes in the future of the company would have ventured to get back in during these time periods.

The Concept of Time

2007-09-13T11:22:00.000-07:00

Whereas the stock market is fast-paced, the Penny Stock market is even more fast-paced. Less volume, smaller point levels, and more investing individuals (compared to large companies with influential capital) all contribute to the quick, volatile environment associated with the lower exchanges. Where a situation can change in hours over the upper exchanges, a parallel situation can drastically change on the Penny Stock market within minutes of an important press release. Nevertheless, it is important to not fall into the mold of a fast-paced day trader. You are not that good.

I use the term “day-trading” liberally, because to every person it means something else. Investors who conduct several trades a day will assume this identity just as much as the person who executes a few trades a week. Bear in mind that day-trading typically fails by the rule of probability (the same rule that controls how many times flipping a quarter will give you heads or tails). Its foundation is weak because it’s based upon sentiment rather than actual tangible company progress. What typically results to the investor is a bleeding through commission charges that ultimately has a person licking his wounds or standing meagerly ahead of where he started (except with a longer tax filing).

Penny stock investing should entail a rational degree of sensible patience. It should not have you trading tens to hundreds of companies, although it should have you researching just as many. Penny stock investing is about finding the hidden gems existent on the market and allowing for tangible company progress to vindicate the investment on the market. It is about finding the companies that slipped the radar of the heavy investors and patiently watch as they rise like a Phoenix. Time is your greatest ally, but for the typical penny stock investor, it is also the very foe he willingly fights.

In this game, there is no need to bleed through compiling commissions. It’s about finding your horse and feeding him with time so that he will do all the work for you. After fully researching a company, still expect a company or two to die along this race, but do not be surprised when the rewards of the remaining horses fully vindicate all expended efforts.

Personally, these are my five horses (in order) that I’ve taken under my wing to nurture:

1) PNMS – Panamersa Corp.

2) PBLS – Phoenix Associates Land Syndicate

3) INTK – Industrial Nanotech, Inc.

4) USSE – U.S. Sustainable Energy Corp.

5) AGWS – Advanced Growing Systems, Inc.

Do NOT invest in any of these without having undertaken a substantial amount of research. Do not believe that this list is by any means exhaustive. I personally have seen several more horses out there to run with.

Choosing Your Brokerage

2007-09-04T16:35:00.000-07:00

Every brokerage comes with the notable perks and areas in which it falls short in comparison to other firms. Nevertheless, there are only a few big names out there that circulate with the reputation of being trustworthy to host your money while you navigate the rocky seas of the financial markets. Naturally, some of these companies are more ideal towards penny stock investing than others. Here is a short & non-comprehensive list of some of the well-known brokerages commonly heard within penny stock communities.

1) E*trade

2) TD Ameritrade

3) Scotttrade

4) Zecco

5) Charles Schwab

6) Fidelity

7) Merrill Lynch & Co.

8) Vanguard

The following advice is just based on my own personal experience and from here-say. An ideal brokerage for penny stocks is one that provides low-commission trading, with minimal (if any) fees attached to maintaining an account with the company. From the list above, I would be as strict as say that your best bet in meeting this criterion is to immediately cross off everyone but E*trade, Ameritrade, Scottrade & Zecco. While the other four brokerages are well-suited for investments, they are not as geared towards the fast-paced online investor that seeks low commission equity trades.

Out of these four brokerage firms that I listed, I would go as far as to highlight Scottrade & Zecco. Scottrade has a lower commission schedule when compared to Etrade & Ameritrade, decent realtime trading tools, and adequate customer support. On the other hand, Zecco has 40 no-commision trades per month (Zecco stands for Zero Commission), terrible realtime trading tools, and questionable customer support. Neither firms have fees attached to maintaining accounts with their firms.

When it comes down to it, there’s a level of risk and reward that comes even from choosing brokerage firms. If you go with the new firm Zecco, no-commision trades provide a level of trading flexibility that every investor dreams about. If you’re more into the safety and well-being of your financial investments, a firm like Fidelity will cost you high commissions but the comfort of being established and secure.

On a side, but important note, several companies have been blamed by fellow penny stock investors to restricting the trading of certain stocks. This often gives rise to the belief that the company is conducting naked shorting operations with these securities. Whether this is true or not is irrelevant for now. Ameritrade happens to be the most common case I’ve come across, having restricted the trading of several penny stocks I’ve been involved in. In my personal opinion, Scottrade is the cleanest in regards to these kinds of records.

I personally have active accounts open with E*trade, Scottrade, Zecco, Fidelity, and Vanguard.

The Funky Friday Rundown (8/24/07)

2007-08-24T20:18:00.000-07:00

(Note: Every Friday, 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. They are just some thoughts. )

1) Seaway Valley Capital Corporation (SWVC) -- Its nice to see this company's attempt in acquiring a decent brand-named business, but is it really going to make an impact to elevate this stock above the pink sheet gravity...? Is there really a future here? Where is there a true competitive edge that can effectively launch and sustain company growth? I just can't see it.

2) Xechem International, Inc. (XKEM) -- There might be some long-term potential here. It pains me to say this though, but bear in mind that there are reasons why companies tend to stay away from operating in Africa. Nevertheless, in the short- to medium-term, I'm not expecting much progress on the stock ticker until the facilities are fully operational and doing business.

3) Burn Media Ltd (BUNM) -- Long-Term prognosis is very hazy. Not exactly a revolutionary idea, but like many modern-day business ventures it could easily be turned into one overnight with a little tweaking. Might be interesting to keep an eye on, but I see nothing here that says buy at the current state of the company. If popularity soars, we'll have a different story. Don't hold your breath.

4) Eternal Image (ETIM) -- I like anything under $0.004. Going to have to wait a while for this one to take off.

5) Ifinix Corp (INXR) -- I think this one might spike again, but I'm staying out.

The Funky Friday Rundown (8/17/2007)

2007-08-17T23:29:00.000-07:00

1) Global Diamond Exchange, Inc. (GBDX) – Interesting volume on today’s close. I like the likeliness of the company being turned private, but my caution bone is starting to tingle over the lack of the company’s transparency.

2) Phoenix Associates Land Syndicate (PBLS) – Verification from Komex needed, but clear sailing otherwise. In my opinion, the company was undervalued from both a current and long-term view even before the massive contract.

3) Ifinix Corp (INXR) – Yeup…. Might be an interesting short-term play, but I’m not seeing a bright future if a brokerage doesn’t adopt the software.

4) Esprit Financial Group Inc. (EFGO) – I’ll admit that I know little about this one, but there’s a very strong aura of desperation surrounding the company's focus. Personally, I haven’t seen anything that catches my eye for a sustainable long-term future.

5) Eternal Image Inc (ETIM) – Company’s trading sideways staying aloft in light of pink sheet gravity. I love the future of this company, the industry hasn’t been changed in tens if not hundreds of years.

Reverse Split Death

2007-08-16T22:41:00.000-07:00

Contrary to popular belief, there is no such thing as a true bottomed-out share price. It’s almost a funny concept that those who trade on the upper exchanges believe that a share price of $0.01 (one penny) is the lowest a stock can go. Any penny stock investor (PSI) knows this to be a myth when they start venturing into the subpenny stocks. Yet it’s also a common mistake for those on the lower exchanges to believe that $0.0001 (one hundredth of a penny) is the lowest a stock’s share price can go. This is simply not true.

The value $0.0001 holds significance in the eye of penny stock investors because it is the lowest digit place that most brokerages will allow to be traded. Nevertheless even this can not be viewed as a practical bottom. Enter the dangers of the reverse split. A reverse split is an easy enough concept to understand: For every x amount of stock you own, you are now given y amount of stock (where X>Y) as the share structure is equally cut by a specified ratio. For instance, if you had 1000 shares of ACME Inc. that underwent a 1:10 reverse split, you will end up with 100 shares of ACME Inc. even though the value of those shares have not effectively been changed.

However, the dangers of this shifty maneuver are not in the action itself. A split of any kind will never change the inherent value of that stock (for all intensive purposes - we can talk about protected preferred shares another time). The dangers of this maneuver (aside from the affected shareholder sentiment that reacts to the announcement of a reverse split) is in the likely subsequent action of the company. A company that feels like it needs to reverse split typically has the intention of further diluting the stock once again in order to raise capital. Going back to our example of ACME Inc., pretend that the share price was originally $0.10. After the effective 1:10 split, the share price now becomes worth $1.00. This is a more respectable share price to the psychology of the shareholder despite the fact that the value of the stock has not inherently changed.

It is rare for a company to decide to reverse split its stock without having the intention of later diluting it. One possible reason in which this might take place is when a company needs to hit a certain price to retain its listing on a certain exchange. Another reason is that a company might merely want a more respectable share structure (a few million shares instead of a few hundred million shares). Yet for the most part, reverse splits are never as innocent as these scenarios. Often, these might even be used as the masking reasons behind the true intentions of the company.

Reverse splits are common on the lower exchanges. Many companies end up diluting there stock so much that the original price of the company’s stock may appear to have been worth hundreds if not thousands of dollars at one point in time. Typically, it’s a good idea to avoid companies that undertake reverse mergers entirely. Companies that are the product of a reverse merger (that might have included a reverse split) are a different story entirely. We will talk more about this another day.

Death of a Company

2007-08-15T02:39:00.000-07:00

The Pink Sheets are often viewed as the birthplace of new companies, where concepts meet public capital in an intricate process of implementation. Often these companies are spawned into public life out of the shells of companies with broken pasts through a reverse merger process. Yet as in every circle of life, there must be death before there is life. In regards to the Pink Sheets, it should be viewed as an open gateway between the life and death of public companies. There are the dying companies that have no future (many that have fallen from the graces of the upper exchanges after being delisted), the stagnant companies unable to clear the pink sheet gravity and will eventually die just as the former, and finally the undervalued gems with futures that can eventually clear the lower exchanges obstacles.

Not all companies on the Pink Sheets are in a transitive state. Well-known companies like Nestle (NSRGY.pk) and Heineken (HINKY.pk) call the Pink Sheets their home for instance. Yet for the most part, and for most people, the Pink Sheets will always be that high-risk zone where the rules of the game starkly change. Like a stigmata, the “.pk” brands companies with the degrading mark of instability, volatility, and a general sense of futility.

As another rule of thumb for penny stock investors (PSI), it is wise to stay away altogether from delisted companies. Companies that have failed to retain their spots on the upper exchanges are the fallen angels of the investment community. They carry momentum of a dangerous kind, as their futures are vague or perishing and the need to raise capital likely lurks around the corner. A wise PSI will fish in “safer” waters by trying to find companies that are new to the market, and yet not new as a company. Stop watching companies that have come to the Pink Sheets to die. After all, resurrections are a rare occurrence.

Pink Sheet Gravity

2007-08-14T15:43:00.000-07:00

For some time now I have been referring to a phenomenon known as Pink Sheet Gravity that only exists on the lower exchanges. Roughly defined, pink sheet gravity is the market force that pulls down the share prices of the public companies listed on the OTC:BB and the Pink Sheets. It is likely the cumulative effect of several conditions varying from dilution of the company stock, the social environment of the lower exchanges, and the mysterious (but commonly blamed scapegoat) naked shorting process .

Pink Sheet Gravity is the most influential operational distinction between the lower exchanges and the upper exchanges (NYSE, NASDAQ, AMEX, etc). From a historical standpoint, the stock market (upper exchanges) has maintained a steadily growing upward momentum over the long run. Were one to look at a comparable study at the lower exchanges, we would see a trend very much in the opposite direction.

It is for this reason that investing on the lower exchanges has always been an avoided practice. Like putting coins in the slot machines of several casinos, diversifying a portfolio on the lower exchanges leaves the odds of long-term success low in your favor. Yet with meticulous research, comprehension of the lower exchanges, and self-control, choosing the companies that can succeed in beating the house can be reduced to an informal “science”. Just as well-known poker players annually find their ways back to the final tournament table, a penny stock investor who knows the game is likewise able to overcome the Pink Sheet Gravity through the undervalued companies primed for take-off.

Diversification Overkill

2007-08-13T16:28:00.000-07:00

The number one rule that every investor knows is to “diversify your portfolio.” It couldn’t make more common sense than if Mr. T himself were to jump out from around the corner and say it as it is. Diversifying one’s portfolio makes perfect sense as the only effective tool to soften the blow of losses in a dangerous market. Yet diversification can also serve as a Trojan horse when it comes to the pink sheets, where penny stock investors (PSI) come to apply the rules of the game they’ve learned from trading on the upper exchanges.

From a practical standpoint, it is wise to invest only a certain percentage of your portfolio into penny stocks (NEVER invest your entire portfolio into penny stocks). This is an intelligent form of diversification. Penny stocks must always be considered speculative, and it is wise to dip your hands across the risk spectrum for a balanced portfolio fit for you. However for the fool who ignores this advice, diversification entirely on the lower exchanges will NOT mitigate your losses more so than investing into a few companies.

For the unfortunate fool who finds himself heavily invested in penny stocks, diversification results in a capturing of the lower exchange market as a whole. Yet unlike the upper exchanges, we have already established that the lower exchanges are hindered by the pink sheet gravity. Diversification on the lower exchanges results in the downward momentum of your portfolio.

Proper commitment to the procedure of research and confirmation will give way to proving that some lower exchange companies stand high above the rest in regards to their inherent value to the industry. Out of the amount you’ve set aside for penny stocks, invest heavily in these companies at the ideal times.

As a rule of thumb, whenever possible, aim to try to own at least 1/10,000^th of the company’s outstanding common stock. Depending on how wealthy you are, this fraction can vary accordingly. When considering that decent money on the upper exchanges will tend to buy you a fraction in the 1/100,000^th to 1/1,000000^th range, it is wise to exploit the advantage of the lower exchange market – low market capitalizations. If you find that your investments in your portfolio are nowhere near accomplishing this fraction, consider tightening the amount of companies you’re invested in.

The Funky Friday Rundown (8/10/2007)

2007-08-10T03:47:00.000-07:00

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

1) Phoenix Associates Land Syndicate (PBLS) -- As of right now 3:25am, I’d say that the 1^st round of anxious profit-taking is done and the second round of accumulation is coming around. HUGE contract, pay attention to this company.

2) Panamersa Corporation (PNMS) – CEO Mike Terell left, or did he? Personally it seems like his “departure” would mean he’s more committed to the company by getting further involved… and that kind of devotion is a good thing in my books.

3) Deep Down, Inc. (DPDW) -- Oil’s expanding out to shore in the long run, and the price is only going up. This company’s got a likely future, but no comment on the short-run.

4) Franchise Capital Corp (FCCN) – Never been into auto parts myself, but there’s something to be said about the attention Aero’s been getting. I’m curious how profitable they can be.

5) Renewable Energy Resources, Inc (RENW) – Still seeing a lot more pain before the gain. I like the potential though. Huge jump for those who caught the bottom, but I got a feeling it won’t be the last time we see it there.

Research and Confirmation

2007-08-09T12:15:00.000-07:00

As two sides of the same coin, the practices of research and confirmation are two reliable techniques to sound penny stock investing. Without them, you are flying high above the Atlantic without lights or radar. For down here in the lower exchanges, nothing can be taken at face value. Here you will find dirty stories that sound like fiction… and sometimes they might just be that. Then there are also those instances in which you might hear little at all, and left to fill in the dots. The lack of transparency requirements and big brother watching over the shoulder of each company often results in a lesser degree of obligation to the shareholder when compared to companies on the upper exchanges. Such freedom on the company’s part leads to exploitation to some or lack of regard by others.

On the lower exchanges, every good shareholder must attempt to piece together a story that exists beyond the Press Releases. The story involves how the company has come together, what its current purpose is, and what its direction is. More importantly, it is critical to establish why it is you believe that this story is validated. External confirmation is the more supportive evidence towards a successful story. Whether this be in the form of contracts formed with other companies or a guy driving past a factory to confirm its operational, external confirmation is the glue that binds the story together.

As a reminder, it is important to remember that external confirmation by itself will typically never validate the entire story but a specific part of it. There will always be judgment call needed into believing any story. If you are not actively looking into the story of a company alongside reading the PR’s, you are setting yourself up for a more dangerous situation by numbing your investing senses.

Patience is a Virtue

2007-08-08T00:09:00.000-07:00

“Patience is a virtue...”

The old slogan is beaded with wisdom when contrasting the trader to the investor. Patience is the defining factor that distinguishes between the two. It is the missing element that weighs a sizeable return upon the company’s progress rather than the sentiment of those following it. Above all, it is the most elusive characteristic of the penny stock investor (PSI).

What patience means:

Patience means avoiding to execute trades on volatility.

Patience means retaining a likely futuristic outlook of the company.

Patience means enduring non-crimpling obstacles to the company.

What patience does not mean:

Patience does not mean blindly holding onto a currently overvalued stock.

Patience does not mean reacting to rumors before proof.

Patience does not mean justifying a progress-crimpling obstacle as a non-event.

The Story Beyond the Press Release

2007-08-07T05:33:00.000-07:00

I recently watched a documentary about North Korea. It dwelled upon the puppet population that today has found itself brainwashed and strictly controlled by the military state. In a nationwide effort to save face to the world, those in control have made several efforts to deceive and protect their nation’s image through elaborate facades. Some of these ranged from the existence of fake cities along the 38^th parallel to the building of 40-story high-rises that in reality service fewer than a hundred people. Overall the documentary clearly portrayed an example of a dominant back story that operated contrary to the advertised public story.

In the same sense, investing in penny stocks will sometimes carry a similar model in which a back story (the non-publicized events/progress) will dictate the direction of the share price over the influence of the public story (ie. Press Releases, Conference calls, etc). Most of the time, such instances of this model are scams and deceptive companies that adversely hurt the shareholder. Such companies are the ‘North Koreas’ of the lower exchanges and are so rampant amongst the Pink Sheets that they tarnish the image of trading of penny stocks.

But every now and then… there are the odd outliers that serve as counter examples to the common trend. For these companies, the public typically knows very little of what’s going on as the company fails to press release its success for some reason or the other. Such companies are risks to take in themselves. Despite their positive trends, it is always a good idea to have full comprehension of what it is that is going on with the company and what it is that is driving the share price. Unless you are privy to such inner knowledge, it will always be advisable from this investor to stay away from such companies. Whereas it may seem profitable to follow the crowd, it only takes the one back story event unknown to yourself to leave you hanging dry as the upward trend collapses drastically. Get to know the story, or stay out.

Here are two examples of these oddities that have broken the stagnant trend of the lower exchanges in an unexplained upward trend. (OCTL is a research company that has very odd movement relative to the moderately successful news released to the public, and SRFDF is a major mining operation that has released very little information to justify the multi-bagger it has already become):

Trigger-Happy Jack

2007-08-06T09:14:00.001-07:00

When the rubber hits the road, only the execution of the trade will matter when investing in penny stocks. Throw away all the research, the luck, the confirmation, and the whole shebang. If you don’t buy in at the right time or sell when the harvest is plentiful, you’re setting yourself up for a painful experience. Particularly noticeable in the pink land of the lower exchanges, entry and exit points require both a form of patience and resolve for the best possible outcome.

Penny stocks are inherently cheap. Yet ironically they typically trade on the same interval scale as those of the upper exchanges. Investors hate to trade on subpenny intervals (ie. $0.1234) when they’re not coerced to do so (they are forced to do so when a stock drops below a penny). Unfortunately, this also adds to the volatility of the trades. For example, an 8-cent stock will typically jump on a 12.5% gain or loss on a single tick.

Because of this, following a company’s trading patterns is a vital part of investing on the lower exchanges.

Does the company have low volume?

Is the company trading sideways or does it sink and rise regularly?

How does the stock react to certain news?

We’ll go into more of this another day, but in the mean time it is always useful to get a firm understanding of how people react in various market situations. I say this because down here on the lower exchanges, your peers are typically the ones that are able to fluctuate the share price. Here are just two noticeable trends to bear in mind when it comes to executing the trade:

1) People like to trade heavily in the morning on news -- It’s very common to have morning spikes on the release of news. If you miss the spike, but feel the trend will continue, have a little patience as the price will typically retract a bit within an hour as people profit-take or panic a little less after coming to their senses

2) If a deadline approaches, a trend will not continue up to that deadline – If a company is undervalued, do not expect it to obtain a representation of its expected value prior to hitting a deadline. Even while there is momentum, this will typically cut short a few days prior to the deadline and begin to trade sideways or sink.

The Funky Friday Rundown (8/3/2007)

2007-08-03T01:12:00.000-07:00

(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) West Point Capital Inc (WPNC) -- Potentially turned-sinner? I like the management, concept, and share structure. Undervalued on future value, but can the company truly meet its "financial guidance?"

2) Ifinix Corporation (INXR) -- This one still remains way too hazy to be a solid investment... get a brokerage signed on & then we'll see.

3) Panamersa Corporation (PNMS) -- No significant news in a long time leaves unhappy investors, but there has been a consistent trend of sideways trading... dare to look beneath the skin on this one? You either believe it or you don't. Win big or lose it all.

4) Phoenix Associates Land Syndicate (PBLS) -- Looking higher within a few weeks. The company's building a vertically-integrated empire, but is it coming at the costly expense of shareholders (dilution)? UPDATE (1pm): "The BIG news was released today! GO BUY at these undervalued prices! TA being ungagged, showing the company's opening up as well!"

5) Xechem International, Inc. (XKEM) -- Possible long term success, but we won't be seeing this take off anytime soon. Lets look back in a year.

Leave a comment on a stock you want watched.

Dodging the Head-Fake

2007-08-02T00:11:00.000-07:00

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.

Trust in a Trust-free Zone

2007-08-01T08:19:00.000-07:00

The typical (Penny Stock Investor) PSI is a lone wolf. He hunts alone, and is forced to survive on his own… (and is sometimes pushed to defend his dignity from the wife critiquing over his shoulder).

With the invention of the internet, a new battlefield dynamic has emerged to the aid and woe of the investor. Internet forums have become a modern phenomenon as a channel of interlocution between PSI’s. Suddenly the PSI is thrown into a social world, allowed to operate amongst like-minded lone wolves in a pack mentality. He becomes a soldier for a common cause, but trapped behind the necessary cliché of “always looking out for number one.”

Knowing who to trust is the key to a successful team. But in this world, there is never a means of truly knowing who to trust. Ultimately, it comes down to a weeding process of skimming the more loyal and dependable from the selfish, opinionated, and non-contributing majority.

Suggestions to effective weeding:

1) Ignore all company bashers – Even if they’re right about the company, a person who takes a negative stance against the company will never add to the insight that another person you can trust or yourself could easily contribute.

2) Take note of people who take time to write their entries – A person committed to knowing more about the company will often take time to write longer entries in order to be heard (this is not to say ignore those who don’t).

3) Take note of people who actively research – Has this person made a call that others hadn’t? Has this person taken a search a step farther than you? Watch the actions of these people.

4) Cautiously ignore people who overreact and/or flip stances – People who allow their sentiment to get the best of them will often be more dangerous to the cause in the long-run than they will be useful. Be careful with such people, but mindful of their good input.

5) Throw a bone – When possible, single out those you’ve been watching & privately throw them a bone to see if you can establish a closer network.

Some Popular Internet Forums dedicated to Penny Stocks:

InvestorsHub (Personally, this is the only forum I find to be the most useful.)
Investor Village
Silicon Investor
Raging Bull
Hot Stock Market

It's all about the Packaging

2007-07-31T05:38:00.000-07:00

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

2007-07-30T00:34:00.000-07:00

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)

2007-07-29T00:45:00.002-07:00

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)

2007-07-27T00:09:00.000-07:00

(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

2007-07-26T00:38:00.000-07:00

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

2007-07-25T00:07:00.001-07:00

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

2007-07-24T00:52:00.000-07:00

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

2007-07-23T05:18:00.000-07:00

"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)

2007-07-20T02:03:00.000-07:00

(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

2007-07-19T02:18:00.000-07:00

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

2007-07-18T02:16:00.000-07:00

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

2007-07-17T00:51:00.000-07:00

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

2007-07-17T00:47:00.000-07:00

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.