Penny Stock

[spncr2]

Jack, I agree about OTC stocks being filled with market crooks, but could you please go into more detail of what these crooks do and how they profit off you? I think i know what you mean, but another opinion would be greatly appreciated!

Thanks.

[gijoe9]

My buddy bought a penny stock recently completly on impulse. I asked him if he was nuts or what. The company is a Canadian based reforrestation company with a contract to reforrest a large part of Inner Mongolia. This company used to be a junior oil & gas exploration company. He bought 10,000shares @ $0.145 each and after comissions his cost is about $1500.00 the shares Are trading at around $0.12 each. - $0.025 or down 17 % or about $300. After my initial reaction thinking my buddy was nuts I had a closer look at this company I actually like them I understand what they do and how they do it they have a secure goverment contract with China to provide 500 million Tree seedlings per year for 50 years. I know in Canadian dollars what that might be worth in Canada per year. After some calculations I came up with a possible home run scenario of about $13.00 per share or around $130,000.00.
Enough of the upside now for some reality when he purchased the stock we killed ourselves laughing because 10,000 shrs were the total volume for the day so there is this huge volume blip and it is his. The novelty soon wore off as we began to appreciate that even if he wanted to sell this stock the daily volume is so small he may take a loss just to sell it. The company is on the hook to build the green houses in Mongolia and because they are from Calgary Canada it is a bit harder to just go downtown to get something you need to complete construction. The contractor who started the project got out before the first green house was completed. So to make a long story even longer This company may cease to exist due to an inability to meet construction and other contractual obligations. Net loss to my buddy will be $1500.00 not much chance to get out due to the volume.

During this same period of time a company we were both looking into was trading around $8.00-8.50 per share. He purchased 300 shares eventully @$8.65. But at the time he bought the other company the price was 8.25. The second company has a much brighter outlook in my opinion and his to. They have developed a proprietary technology that if it works will allow access to more oil then opec has. The oil is there right now but no one has the technology to get it. Untill this tech is proven and they are in the middle of testing it in the field right now first results expected end March 06. As the word is getting out about this tech and the impact on the oilsands production demand for this stock has gone up and the price with it. This company has oil production of 4000 barrels a day at the end of 2005. If the Technology works 100% they will be producing over 50,000 barrels per day by the end of 2008. The expectaion after some calculations is a share price of $45-90 within 5 yrs. Now if my buddy would have invest in the second company at the time he invested in the first for a total of 500 shares and there is a home run here the he would have 500 times 90 = $45,000.00 or about 1/3 of the home run for the first company. The above calculation does not consider any other operations the company may start in other locations in this time period.

Down side: The technology just does not work and boom the share price falls. The shares base price based on our research should, excluding the speculation on the technology, be about $5.00 per share. If it goes below that it will be an opportunity to buy. I think the biggest loss he may have will be in the $3.50 per share range.


The points of this long story are:
know what you are getting into
higher risk does not dictate return
Doing the math is never bad but doing bad math most certainly is.
If a stock is trading at ten cents there is a reason for it.

Sorry for the long wind I hope this story will help someone.

[gijoe9]

Thank you for the discusion on point three. I was on a long rant and ran out of room and the will to write more at that time. There are other points that may be infered by my "long" story. One relating to the math my budddy in the story did little or no due diligence for company one and did do it for the second. Other then the down side of company one (much higher risk) I agree with the fundamentals the lesson here for me is that sometimes you get lucky. But most likely in that kind of scenario you get burned.

I totaly agree with your points on the math. It is way to easy to jump on a low P/E company thinking your getting a firstclass ticket for the love boat when in reality you may be buying a ticket on the Titanic. P/B is the same thing they report based on GAAP but they ignore the fair market value of some assets. This could raise or lower book value by a large margin. The more you know about the company you buy the easier it is to make an informed/safe decision. GAAP is can be confusing and at times it makes little sense to the layman.

I think maybe my 3rd point was intended to inject a little humor into the mix. It was 3am at the time. Regardless of that the point was over generalized and deserved some expanding thank you for taking the time to do just that.

Cheers Joe

[Drew Reed]

[QUOTE Besides, one can never enter and exit a trade at the desired moment.[/quote]

Can you tell me why?

[lehayes]

Oh boy, a penny stock chat... oh what fun.

Let's first start off with identifying the difference between a penny stock and a stock traded on the open markets.

(geeze, I should write a book on this, in fact, many have been written)
Penny stock is a stock that is traded on what is known as a pink slip, Bulletin Board, or "Over The Counter". Typically, these are companies that are just starting out and growing. Sometimes they are companies that could not for one reason or antoher maintain the strict requirements that the SEC or each major market has set upon them. This could be due to the nature of the company, the success of the company or the non-success of a the company.

There are a few companies are not traded on the market because their dollar value per share is too expensive and the market is not of much help to their growth, but they still trade over the counter so they can get premium buyers. So just because someone calls it a penny stock does not mean it is cheap, it can also be really expensive. The highest one I have seen was going for $9000 per share.

The companies that are traded on the open market meet all the criteria of the SEC and the market exchange for which they are traded in. Because these companies run with tight restrictions, they are easily regulated and highly visible in the market to every day people like you and me. For this reason alone they can provide you with a safer and more secure investment solution. Without these security protocols for them to go through, we would have a hard time collecting enough information on them to be a low risk investment. This is why penny stocks are considered a higher risk investment.

Yes, you can get into a penny stock that is traded on pink, bulletin board, or OTC, and make a huge profit. This is because of the leverage, (see my document on Leverage in the site library). The down side, is that you have to typically call in an order that is traded on Pink, OTC, or Bulletin Board, thus the name "Over The Counter". Some brokers will allow you to trade them through their online systems, but I would not count on it much. There is an additional cost involved in buying these stocsk as well. In addition, you may decide to sell the stock at one price, but because of the process of the selling it may take longer than the automated systems and you will lose some money during the sell process.

Many of these stocks do not have public information or limited at best. The best way to learn how to obtain this information is to buy some books on Penny Stock Investing and learn what the pro's use. Keep in mind, that in my opinion, penny stock investing is not for a rookie. You need to know what you are doing, be prepared to do a lot of your own fundamental analysis on the stock and be prepared to lose a lot of money while learning the ropes.

It is possible to trade stocks that are not on Pink, Bulletin Board, or OTC without having to go through much of the headaches. Simply look for stocks that are priced between $1.00 and $5.00 per share that is not marked as Pink, Bulletin Board, or OTC. Some broker programs will provide this information to you and it is located different based on the broker, so contact your broker to figure out how they denote stocks on these trade markets.

P.S. If you are really interested in Penny stock investing, I would recommend that you get used to the idea of going door to door on every business you see and ask them if you can invest in their company. You may have better luck than penny stock investing. The riches are high for those who know how to play it, but a really bad long shot gamble for those who do not.

[FlameOut]

A few years back, a guy a work with mention a company called E-Digital (EDIG). He had bought like 1000 shares at around $0.60 cents each. I had also purchased some along the climb. To make a long story short, it climbed to the $24 a share range. My friend didn't sell (greed - I guess $24,000 wasn't enough for him for his $600 investment) and today I think it's around $0.14 cents a share (Up 14% today)

I still watch it, but won't do OTC again. I lost about $15,000 in late 1999-2000 (Probably the worst timing to go long in the market)

Bill

[SirD73]

Ok here is a some ?'s. What is the lowest you can pay for a penny stock? Is it $0.01 per share? And if it goes below $0.01 does this mean the company went broke? Do you loose just your investment if the company goes broke? Say i put $100.00 into a stock at $0.01 for 10,000 shares and the company goes bankrupt or something along that line. Does that mean i just loose the $100.00?

[anfern057]

Stocks can trade at fractions of a penny. You will only go broke if they go to BK (and I'm not talking about Burger King).