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Penny Stock Mentality

© Allan Gust

Allan has taught me much about penny stocks over the many years I've known him. I've felt his advice below is so helpful that I wanted to immortalize his words here. This post in our BOWG discussion is where Allan last published his "Penny Stock Mentality" advice.

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Kirk, in hind sight, every price that excited me where I held out for more was a wasted selling opportunity. If you are excited, it's toppy!

Penny stock Mentality

So what type of investor trawls penny stocks?

1. He's willing to buy a 9¢ stock that's 9¢ because nobody else wants it.

2. He's willing to wake up in the morning and find his 9¢ stock now 4¢, or his 50¢ stock now 28¢ and still enjoy his breakfast profusely, because he knows he's picked a winner.

3. He's willing to average down from 50¢ to 9¢ and will buy heavily at 9¢ so the great majority of his stock is purchased at the cheaper level. Hey, he believes in the stock. Of course, the stock slips from 9¢ to 6¢ but that is of little consequence--he knows he's gotten in near the bottom and nobody hits the exact bottom anyway.

4. He loves his penny stock, but when he has a double, he sells half no matter what. And he's invariably happy in the end by his tactic.

5. He finds while doing his DD (due diligence) that one of his tech stocks he just bought a load of is spending more money on plane fares seeking capital from Europe, than it is developing its product, so he dumps it all immediately even though it just dropped 25%. And he figures he's ahead of the ballgame. The stock has a 5 for one reverse split and he celebrates the fact that he sold his remaining little stake at a 75% loss instead of the 95% loss that would happen just a week later.

6. He gets bored with his penny stocks and ignores them for a few weeks and looks at his statement one day and finds a 70¢ stock of his that had lost half its value over a period of 3 years now is over $4 a share and his hand is shaking as he calls his broker to sell. The same stock is $12 a share a few months later. Then $1 a share a couple of years later.

7. He buys a 2¢ stock because he knows that the shell alone of any penny stock is worth 2¢ a share for companies trying to avoid the hassle of starting a corporation from scratch. His 2¢ stock goes into a 100 to 1 reverse split.

The copyright of the article Penny Stock Mentality in Investing/Personal Finance is owned by Allan Gust. Permission to republish Penny Stock Mentality in print or online must be granted by the author in writing.