About 8 years ago if you had mentioned penny stocks I would have not had a clue as to what you were talking about. At that time, I was only aware of stocks that traded on the larger exchanges like the NASDAQ and NYSE. My wife at the time mentioned to me that one of her co-workers traded penny stocks, making a chunk of change over the previous two years, which got my attention. At this point I should set the time line. It was February 2000, two months before the April crash! Needless to say I missed the heady days of the late 90’s when you could buy any penny stock and make a mint. I have never known a good penny stock market in all of my years of trading these wild and wooly securities.
I don’t remember all of the securities I bought the first six months of 2000, but two do stand out in my memory: AREE and MPTV. Both of these penny stocks taught me HUGE lessons about the pitfalls of investing in penny stocks. These two “winners” took the cherry of this neophyte-virgin-penny-stock-investor. This was back in the heyday of Raging Bull and Silicon Investor, the two places to be when it came to finding the next big skyrocketing stock, or so I thought. I should also mention that the Internet was also a new toy, barely aware of what a search engine was, much less pumpers and bashers.
I invested my hard-earned money in these two gems and the thought that someone could come to the AREE or MPTV message boards and talk negatively about them was total anathema! I asked myself what would motivate someone to bash the outstanding companies that I had invested in…..pure lunacy! Little did I know at the time, but these bashers were absolutely correct in their muckraking which I would soon learn a few months down the road. After a few reverse splits and symbol changes, you become jaded and start to realize that usually bashers turn out to be correct. Not always, but most of the time bashers are telling you the truth.
After almost a decade of hanging out in stock forums, I’ve seen and read just about everything related to penny stocks and penny stock promotion. I seldom venture into stock forums and message boards anymore since I find most of it boring with worthless information, however I do occasionally visit them for entertainment more than anything since you can usually find a soap opera brewing better than any prime time program. These penny stock soap operas usually take place between what I call rabid longs and bashers or paid touts or bashers. I’ve found that rabid longs usually provide the best entertainment, especially if there is a basher about that prides himself on proving the other party wrong.
A basher that is both witty and knowledgeable is a sight to behold and well worth the time spent watching him ply his craft. The best bashers do it for pure enjoyment with no other motivation than to be proven correct in the end and saying I told you so! Their post bristles with sarcasm that moves under the radar of Terms of Service, avoiding the boot by message board moderators. It should be noted that Raging Bull was the most honest forum ever for penny stock discussions. Raging Bull enforced the TOS rules to the letter of the law but they did allow both sides to post their opinion, making the discussion honest. Now message boards are moderated by the rabid longs themselves, so it is very difficult to view an unbiased opinion. This is one reason I seldom visit message boards anymore; there is no honest argument!
The rabid long is an interesting critter. I don’t fault them since I myself was once a rabid long, refusing to see reason as well as the writing on the wall. There are several factors for rabid longs myopic reasoning with the largest factor being emotional attachment. No one enjoys admitting they were or are wrong! (On a side note, this is one reason most new daytraders fail! Holding positions even though they know they should bail; which translates into “I was wrong”. ) When you are emotionally attached to something, you have a biased view and are unwilling to see an opposing viewpoint. If you have kids, you know what I’m talking about. You can talk about your kids all day long but no one else can even though there is a possibility that others may be correct in their opinion.
The same goes for penny stocks. Rabid longs invest their hard-earned money in a “piece of shit” and instantly it becomes the next IBM! The best penny stock traders don’t fall in love with any security, EVER!
They realize that they are most likely entering a losing position and accept this before ever pushing the buy button in their trading software. They also accept that if they do lose on the trade, it is solely their responsibility. Not their broker. Not some schmuck that touted it on a message board. Not a spam email they received. The buck stops with them always because they understand the dynamics of the penny stock market.Rabid longs are a completely different animal being ruled mostly by emotion. This does not mean that they invest blindly and do not do their research and due diligence. I’ve seen due diligence posted by rabid longs on message boards that would make any seasoned basher believe his viewpoint is untenable and in the end, the rabid long still loses. Such is the nature of penny stocks.
Eight years ago when I first entered the penny stock market, I was instantaneously turned into a rabid long! I fell for the BS posted by a paid tout. I didn’t know it at the time, but I did find out a couple of years later he was a paid tout but it didn’t matter to me then since I had learned the dynamics of the penny stock market. Which leads me to another reason rabid longs always get left holding worthless shares and relegating them to what I call the shit pile or stock shares bone yard.
In today’s penny stock market, no stock is moving unless the stock is being promoted by someone or Investor Relations firm. They just aren’t. There are exceptions to the rule and it is not absolute, but if you think about it, why would a thinly traded stock move without someone getting the news out. Even if a OTCBB or Pink Sheet stock has great news, no one is going to see it unless they are already watching the stock, have it on their watch list or just happen to see the news scroll by on their financial news ticker. Promoters are the ones that call attention to the news and get it in front of the masses. It isn’t just blind luck that causes a penny stock to move or excellent news. Sure some of it is viral; meaning once the news is out, one investor tells another or posts the news on a message board. Other investors read it and tell others and before you now it, the news is spreading virally. Most of the time though, this is the work of promoters, either through opt in email list, websites or message board postings.
However, there is bad promotion and good promotion. Bad promotion is when a promoter takes compensation, touts the stock going to the moon and dumps in to the volume and escalating share price. This happens all too frequently and is one of the reasons why the penny stock market is in the toilet currently and also why the NASD and SEC are cracking down on Pink Sheet stock companies. Pink Sheet stocks are difficult to buy with many online and full service brokers not taking orders from their clients. Very few brokers allow their clients to buy Pink Sheet stocks anymore as a direct result of unscrupulous pink sheet companies, finance companies and promoters. The current crappy penny stock market is not the result of greedy market makers or naked shorting; it is the result of the characters above, no one else.
Good promotion is possible and does happen. There are promoters that actually care about their clients companies and the people that invest in their client’s companies. They are in it long term and don’t care about making a quick buck and moving on to the next victim like so many fly by night promoters. These promoters work with companies, build a plan around the company and it’s needs and execute the plan and hopefully making money for the company, the promoter and most importantly, the investors.
The stock market will always be a place where there are winners and losers, more so in the penny stock market but this is the nature of the market. Penny stocks attract investors for their low price and the possibility of 1000 percent gains and always will as long as these stocks trade. Educating yourself and familiarizing yourself with the dynamics of the penny stock market before venturing in are the best tools to being profitable in the Wild West of investing!