To: CBurnett who wrote (44 ) 2/5/2000 7:54:00 PM From: Mike Perras Read Replies (1) | Respond to of 394
Size Does Matter Trading Strategies: Buying Stocks with a Low Float Thursday, February 03, 2000 11:19 AM by Chirag Amin, M.D. Despite the recent downturn, many investors have been amazed by the resilience of the current bull market, especially in the Internet sector. Those that have had a long-term (i.e. > 9 months) time horizon, investing in the leading stocks in the Internet sector, have been typically richly rewarded with annual returns well exceeding 100%. Nevertheless, these rich returns were not easily obtained by any means. The vast majority of Internet investors have had to deal with enormous, gut-wrenching volatility in the Internet sector, causing many timid investors to panic and prematurely sell at a significant loss. In the Internet sector, staying the course by keeping a long-term horizon on the market leaders in the Internet sector has always been one of the most important keys to success and prosperity. For those more aggressive Internet investors who are able to stomach the high volatility that is inherent within the Internet sector, one key trading strategy that I frequently utilize has been associated with a significant amount of success, in terms of achieving a stellar return. This strategy involves buying quality Internet stocks with a low float. Simply put, a stock's float is the number of shares of stock that is available for buying and selling at a given time. Therefore, a stock's float is equivalent to the supply of a given stock. Since the stock market works like any other classic marketplace, a stock's price is determined by the supply and demand. A stock in short supply (i.e. low float) that experiences a rise in demand results in a significant upward movement in the stock's price. This is purely and simply due to supply and demand, as good news would result in an increased trading volume due to increased demand, which, in the presence of a limited supply (i.e. float), would result in a huge short covering ("short squeeze"), driving the stock price up very quickly. When applying this principle, I tend to look for quality, industry-leading Internet stocks that have a float of less than 10 million shares and an average trading volume (ATV)/float ratio of approximately 7% or greater. -------------------------------------------------------------------------- All that said GNNU has a float of 1.6 million .. and 1.1 million are tightly held, leaving 500k to trade freely, that's precious little, so the supply/demand issue here will apply in a big way! Cheers, Mike