I hate penny stocks.
I do. I truly hate “penny stocks.” And a lot of the Marijuana sector”s stocks are so-called penny stocks. To be sure, not all of the Marijuana sector”s stocks are penny stocks. But more than enough to encourage me that the first post of my new blog should make clear just why I hate penny stocks.
So-called penny stocks
are historically ripe for manipulation of one sort, and another. Being
thinly-traded makes their price react more unusually to news, and to buy and
sell orders. Being sporadically followed allows dubious research reports to
trigger undeserved price reactions. Briefer operating histories and lower
reporting standards make their fundamentals less reliable.
Penny stocks
typically don”t track very well to technical analysis and charting, which
depends on the integrity of the price action. Since that is my research
technique — technical analysis and charting — I”ve not been a fan of penny
stocks.
I can”t tell you that I have changed my perspective, or that
penny stocks have changed their spots.
But I began noticing last fall (2013) that Marijuana stocks were different.
Perhaps it is a function of the tidal wave of attention and investors — and
liquidity — suddenly moving into the sector. Marijuana sector stocks that form patterns then behave very predictably.
And please don”t take this personally, but penny stocks can attract a less experienced type of investor. I recently saw this comment on the message board for one Marijuana stock: “How does FITX go from 11.4 to 6.3 cent in 4 weeks?” It actually went to 4 cents the next day, where it had traded less than 2 months earlier.
That”s how a stock can drop so far, so quickly — by rising too far, too fast. Newer investors aren”t familiar with several universal laws that affect the markets. Gravity, for instance. Or a variation of Murphy”s Law, that states the most surprising moves can extend by a surprising distance, and for a surprising amount of time.
This blog will constantly include investing guidelines, and other rules of thumb. Newer and seasoned investors alike will better understand how to interpret and exploit price action, when not to push too hard into a trade, and when to consider pushing harder.
The first rule of thumb: Get good guidance before trading penny stocks.