OTC JOURNAL GRIFTERS PROMOTE RICHARD GEIST NEW BOOK
"Dick has written a new book entitled Investor Therapy. The cover reads: A Psychologist & Investing Guru Tells You How To Out-Psych Wall St."
Subj: Confessions of a Serial Microcap Investor
Date: 12/13/2003 7:17:16 PM Eastern Standard Time
From: bounce-otcjournal-200797@lyris.otcjournal.com
Reply-to: info@otcjournal.com
To: XXXXXXXXXXXXXXXXXXXXXXX
Sent from the Internet (Details)
If you are reading this message in plaintext or if you have an AOL address you must click on this link: otcjournal.com and wait for a web page to automatically open up to properly read this newsletter.
December 13, 2003
Volume VI, Issue 125
Email : info@otcjournal.com
URL : otcjournal.com
To OTC Journal Members:
Don't Forget to Become a Preferred Member
Don't forget to subscribe to the free preferred member list, simply click here. You will receive an email confirmation. Then simply hit REPLY and SEND. You will be included in the Preferred Members list. You only need to do this once.
Or, to subscribe by email, send a blank email to otcjournal-preferred-subscribe@lyris.otcjournal.com.
If there is any problem, you can always go to otcjournal.com and submit your email address.
For those of you who are wondering; it's free and we have no plans at this time to charge preferred membership.
Confessions of a Serial Microcap Investor
I admit it. I am a serial microcap investor. I love investing in small stocks, and my portfolio has the wins and losses to prove it. The other day, one of my brokers laughed at me when he confirmed a trade. I called him to buy a three letter symbol of a small mining company trading on the obsure Canadian Venture Exchange. He said: "Just to confirm- you bought 30,000 shares of XYZ corp (I won't disclose the name)". I replied- Thanks for letting me know- I was wondering what the actual name of the company was. He laughed. Of course, it was a "hot tip" from a friend. I'll roll the dice on just about anything. However, I know the amount of money I am comfortable investing in that type of idea, and exactly how much risk I am willing to take. If the trades goes against me, I will take my loss.
I'll stop buying microcap stocks when I'm dead. I know many of you reading this are also microcap lovers. Microcaps are not for everybody. Are you a "self aware" microcap investor. Do you understand the psychology of microcap investing. Are you willing to accept the inevitable losers and can you handle it?
Dr. Richard Geist, Harvard Ph.D. in psychology, and probably the foremost expert in the world on the psychology of microcap investing is a friend and contributing editor to the OTC Journal. His section on the site has seven excellent articles. Invest a few minutes of your time to read his contributions.
Dick has written a new book entitled Investor Therapy. The cover reads: A Psychologist & Investing Guru Tells You How To Out-Psych Wall St.
Today's edition contains another outstanding contribution from Dick. It is an excerpt from his book entitled "Why Microcaps Outperform". Please take the time to read this article. You will find it fascinating.
Dick's new book would make an excellent edition to your library, or an excellent Christmas Present for one of your serial microcap investing friends. Here's the article. Afterwords, I will tell you how to buy the book at a big discount:
Why Micro-Caps Outperform
Dr. Richard Geist
John Cole, one of our most prolific observers of the natural world, once described the flight of the rarely seen frigate bird I a way that reminds me of many who invest primarily in small and micro-cap stocks:
These birds are designed for flight, nor perching; for gliding, not walking, running or scratching in the ground like wild turkeys. The air’s upper reaches are where the frigate bird lives most of its life, soaring, riding the thermals like a skier on invisible, airy slopes, finding hills in the sky, dipping along the rim of a great cumulus, then soaring suddenly higher on a windward thrust those of us watching from below will never feel, see or comprehend.
Like the frigate bird, small- and micro-cap investors are not made for perching or walking, or even gliding. We are searching for those potential once-in-a-lifetime opportunities—the ten baggers, as Peter Lynch coined them—that will make life a bit easier if we are right about their prospects for soaring suddenly higher on a windward thrust of the thermals. We know the well-established companies, however, successful, will trade below those windward thrusts, their market values likely to continue appreciating year after year at a slow but healthy enough rate to assure comfortable wealth by the time we retire. Yet for the entrepreneurial investors, there is something missing in this traditional path. My interviews with micro-cap investors suggests that what makes individuals buy and sell micro-cap stocks often involves more than just monetary wealth. Part of the allure involves the process of discovering and participating in exciting business opportunities, a process that can stimulate our imagination and augment the psychological cement that holds our sense of self together.
Investing in micro-cap stocks is not for everyone. It means taking losses in speculative stocks or small companies that never make it, while maintaining our convictions that creative research and intuition will pay off with enough large winners to far outweigh the losers. It requires the discipline to do more research than most are willing to perform, the capacity for assuming higher risk than most are willing to take, the balance to experience grandiosity yet keep it well controlled, the patience to endure the long time frame often required for innovative products and services to catch on, the confidence to eschew the investment community’s fixation on short term results and quarterly statistics, and a knack for viewing the world in a way that is both highly focused and expansive.
Having said that, however, there are a number of reasons why small companies out-perform large firms by significant percentages over the long term — by about 2.5% per year according to the Chicago research bureau Ibbotson Associates. 2.5% may seem like a minimal amount, but consider the following numbers. If you invested $10,000 that compounded at 10% for 20 years, you would end up with $67,275. If you invested $10,000 that compounded at 12.5% for 20 years, you would accumulate $105,451. That’s a large difference.
The Elimination of Group Think. The first reason that small caps outperform is that developing enterprises need to be innovative and nimble, and that tends to free them from the constraints of group think or herd mentality. Large institutions shy away from smaller stocks because they literally have too much money to invest and it is more efficient to spread their funds among fewer higher priced issues than thousands of lower priced ones. In addition it is impossible for institutions to buy or sell large blocks of small cap stocks without upsetting their market prices.
While the elimination of institutional participation levels the playing field for us individual investors and gives us a better opportunity for substantial profits, it also means we have to act completely independently of the “conventional wisdom” of the Street. As Bernard Baruch once said, most information reaches Wall Street through a “curtain of human emotions.” With little institutional guidance, the small cap investor is left alone to distinguish fact from fiction. Functioning in a virtual vacuum, our grandiose fantasies sometimes need only the slight stimulus of a friendly “can’t lose” tip to play havoc with rational decision making. Thus the small cap investor must constantly guard against rumors and tips, and the fantasies stimulated by working in a more isolated environment.
Pricing Inefficiencies. The second reason small stocks outperform is the dearth of research coverage for emerging companies. Since institutions are generally disinclined to buy small cap stocks, most institutional analysts don’t conduct extensive research on their issuers. Instead of the usual 10-15 analysts reports, we are lucky to find 1 or 2, and these are usually from the company’s investment bankers, who tend to be small outfits themselves and often have their own public relations agenda. Without the typical consensus on earnings estimates, the potential for pricing inefficiencies (i.e. incorrect valuations) is greater, offering the individual investor a competitive edge.
Capitalizing on these pricing inefficiencies, however, exacts a psychological toll on the investor. Exceptional opportunities, by definition, are rare, and uncovering them requires thorough financial analysis and sound understanding of the company, the industry, and the economic factors effecting the industry and the company’s products or services. Doing the job the right way demands enormous time and energy, commodities that are usually in short supply when preoccupied with family and a full time job outside the investment field. So there is a tendency to create our own ostensibly rational assessment of a company based on fantasies woven from incomplete facts and inordinate expectations.
Lower Liquidity, Higher Rewards. The third reason for out performance is that small companies often have fewer shares outstanding and fewer buyers and sellers for their stock. In other words they are more thinly traded and not as liquid as large stocks. Combining this small float with a usually low price, individual investors can often gain much more leverage in small stocks. It’s much easier for a $2 stock to increase 300% than it is for a $60 stock to increase 300% in the same time frame. Because it can be harder to convert your holdings to cash at a moment’s notice, investors demand a higher reward for the increased liquidity risk. Higher potential rewards, however, mean increased psychological pressure to tolerate uncertainty: the uncertainty of exiting stocks in the face of a sudden correction or bear market; the sense of doubt from realizing you cannot have all the information necessary for informed decisions; and the uncertainty that you have made a correct decision in purchasing a stock despite a temporary pull back in its trading price. The more prolonged an investor’s uncertainty in the context of lone decision-making, the greater the likelihood of acting irrationally—selling at the bottom or chasing stocks and buying at the top.
Volatility. Finally Small stocks possess more “company risk” than large caps. For example, they often don’t have the financial strength to survive one poor year, whereas a Pepsico, IBM or Microsoft merely restructures and continues its corporate life after adjusting to bad times. Volatility in this sense means that small companies have the capacity to disintegrate quickly. The small caps of course also have more volatility in the market sense, and their stock can move precipitously and rapidly.
The psychological pressures inherent in the volatility of small caps can compel investors, mistakenly, to make snap decisions more akin to stock and commodity traders than to long-term investors. Quickly falling prices following a poor quarter or other disappointing development elicit an urgency to sell at what may well turn out to be rock bottom levels. Rapidly rising prices can elicit a craving for short term profit taking, which calms the nerves but often at the expense of enormous up-side potential. Because most brokers do not follow the small cap arena carefully if they follow it at all, they frequently join in the panic, encouraging their customers to sell at just the wrong moment. Unanalyzed impatience is perhaps the most insidious psychological danger for the micro-cap investor. The small and micro-cap markets are not for you if your self esteem depends on Mr. Market’s every day approval. But if you can tolerate market pressures and risks on a long-term rather than a short-term basis you will give yourself a fighting chance for meaning rewards.
Because micro-caps don’t usually have 5-10 years of financials to study, micro-cap investor must ask more qualitative questions about their prospective investments. Consider the following questions when investing in the micro-cap market.
1) Does your company have a visionary product or service that could change forever the way large groups of people, or whole cultures carry on their lives?
2) Will these products or services appeal to a niche market that are underserved by the existing products or services and that are willing to think in contrarian ways about new methodologies and tools?
3) Can management drive the company to success? In a micro cap company, no matter how good the product, a poor management team will inevitably lead to failure.
4) Is this the right time to buy? Ideally you want to buy at a point when nothing appears to be happening at the company, but your research has uncovered indications of positive developments.
5) Does the company have effective financial and public relations support? The most common pitfall for small companies is under-capitalization.
6) Can the company develop valuable strategic partnerships?
7) Finally, do you have the time to wait for small companies to become large companies? The average small company takes about 4-5 years to develop into a mature firm.
Here's a picture of the book cover. Order it, and read it. It's a training manual. It will make you a better microcap investor. Also, it would make an excellent Christmas present. The book is on sale at most book stores for $24.95. Amazon sells it for $17.47, a 30% discount. Get it today, and buy it for a friend.
Click Here to purchase Dick's book at Amazon. com. If all you serial microcap investors read this, I will have a highly educated audience.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Charts Provided Courtesy Of TradePortal.com
Disclaimer
The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. Moreover, as detailed below, this publication accepts compensation from certain of the companies which it features. Likewise, this newsletter is owned by MarketByte, LLC. To the degrees enumerated herein, this newsletter should not be regarded as an independent publication.
Click Here to view our compensation on every company we have ever covered, or visit the following web address: otcjournal.com for our full profiles and otcjournal.com for Trading Alerts.
All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein.
The editor, members of the editor's family, and/or entities with which they are affiliated, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed in the newsletter.
The profiles, critiques, and other editorial content of the OTCjournal.com may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF THE EDITORS OF OTCjournal.com.
We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at sec.govand the National Association of Securities Dealers ("NASD") at nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at sec.gov. Disclaimer ID:4PvMONjL Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.
--------------------------------------------------------------------------------
Unsubscribe Here
--------------------------------------------------------------------------------
You can unsubscribe from this list at any time by Clicking Here and HITTING SEND. If you are having difficulty removing yourself or wish to change your address please go to listserv.otcjournal.com@aol.com. |
