Eric, your approach to penny stock investing is no doubt very thorough. Thank you for sharing your insights. I think where you can get into trouble is when there is an overemphasis on DD and not enough attention to money management. This approach leads to a long term buy and hold strategy. While this may work for millionaires (who can afford to write off a total loss once in a while), for the small investor it can mean sitting on a loser for months or even years. I'm sure there are lots of people reading this who are currently in this situation, i.e. holding a stock that is 50 - 75% below their buy in price. What's worse, many probably continued to buy more of the stock as it sank in an attempt to "average down" because their DD told them it was a great company with loads of potential.. Now they are stuck with even a larger loss as they wait for their dog to become a star.
Small investors are often encouraged not only to buy more stock as it tanks, but to take delivery of their certificates and just ignore the market for a few months. The theory is that somehow the stock will eventually rebound and you will save yourself the aggravation of the day-to-day ups and downs of the market. All of this because the company has such great "fundamentals" and is a sure thing in the long run. My belief is that this is exactly what the promoters want you to do. Lock it up, forget about it, and check back sometime next year. Well, good luck, but my experience tells me that maybe one in ten companies will recover in a reasonable amount of time. The rest will either play dead for years, do a "share consolidation" to artificially raise the share price, or go bankrupt.
Personally, I don't "invest" in penny stocks, I speculate. I'll leave the investing to those who can afford to lose it all.
Cheers,
Robert |
