Newbie investors who feel lucky should use their gambling money normally
spent in Las Vegas, Atlantic City or Monte Carlo.
Experienced investors should use their RISK Capital, i.e. money they can easily afford to lose, without materially affecting their life style.
Because the risk can be substantial, each investor should consider carefully whether it is suitable in light of their financial condition.
There are many ways to make money in the market, and many markets to make money in. In these posts, we will be covering four popular Las Vegas style investments:
We recommend buying a basket of 5 to 10 investing units. If you start with $10,000, then each initial investment unit would be one or two thousand dollars.
I recommend using the following two trading rules as outlined in my book INVESTING BY THE STARS:
A) WHEN A STOCK DOUBLES,
1) Sell half if a "hot play" or 2) double up if a long term investment.
B) WHEN A STOCK LOSES 50%,
1) Take your loss and sell or 2) Reassess the Fundamentals. If you believe they are still solid, double up or hold, depending on the original astrological forecast.
Note: These rules apply to discretionary traders. If you prefer rigid
systems, then simply sell 1/2 when a stock or option doubles as well as
when it loses 50% of its original value.
The first is that while microcaps respond PRECISELY to negative astrological
influences, they do not always respond to the positive ones. Why is this?
Astrology shows potential- it is a necessary but not sufficient condition for business success.
Even if a stock has a good horoscope potential, it still may NOT have sufficient financing or management depth to win. Conversely, often operating on a shoe string and a promotion, negative news is almost always right.
Secondly, these stocks are often heavily promoted. I trade them
primarily as "non expiring options." Generally, the rule of
thumb is when the stock doubles, take half profits (so you can't lose);
when the stock falls 50%, cut your losses.
Now these are not iron clad rules, but these must be disciplined decision time points.
These stocks are generally bought either as hot stocks plays or as long term investments. We use the latter approach. Remember, however, that VERY careful fundamental analysis is REQUIRED. In addition to doing fundamental research on these companies, we do technical analysis where appropriate. Most important for us, however, is astrological analysis. We research the horoscopes of the incorporation of the company, its first listing time of its stock exchange, the President, and where in depth study is warranted, of the key personnel.
While for the last two years we have avoided Canada as a global under-performer, the tides have turned for our northern neighbor. Over the next two years, we believe it will slightly outperform global market indexes.
The Western Canadian stock exchanges are truly "wild west." If you regularly
invest in emerging markets, I would suggest an alternative that can be
just as profitable but avoids many of the economic, financial and political
risks: the Vancouver and Alberta Stock Exchanges.
However, unlike their US counterparts, where a stock will be promoted to its HIGHEST possible price, the Canadian market makers like to heavily short these stocks. Since most will eventually fail, it is not an unreasonable approach.
While the majority of PENNY STOCKS lose value over time, we find astrology improves the odds dramatically! Although many small companies with good horoscopes do not succeed, using an astrology screen in the selection process adds to their profitability. For us, it is usually part of due diligence. Does it insure success? No. But it certainly increases the risk/reward and probability of high risk/ high reward investing.
I repeat, this type of investment is ONLY for high risk capital, i.e.
money that one can afford to LOSE without affecting one's lifestyle.
Second, know in advance that there is tremendous volatility in these markets.
Third, as in emerging markets, you are far away from the source, and mostly likely will be among the LAST to know if there is bad news. In such a case, you would be very unlikely to get out with much, if any, of your principal intact.
Is all this easy and risk free? Yes, of course, that is why every
High risk investor is super rich....
The BIG thought about Microcap "investing" is:
Often quoted comment is Bill O'Neil, publisher of Investor's Business
"In our 45 year study of the greatest stock market winners, more than 95% of the companies had fewer than 25 million shares outstanding when they experienced their best market performance."
However, this is a " BUYERS BEWARE" market. In this universe are the future Microsoft's as well as the graveyard of too many widow's estates. It is the promised land of story stocks. Some stories are true, most are not. In other words, due diligence is required or at least "know your promoter", whoops, this is not Canada, I mean "financial public relations" or "financial publishing professional" 's track record.
The conventional wisdom is NOT to marry your small cap stock.
From a purely financial viewpoint this is good advice that I routinely
IGNORE! Let me explain. If you are thinking of investing your
life savings, DON'T. If you are investing that portion that
you allocate to high risk/high reward stocks, you have a choice to make.
It is to either
(1) Be a disciplined trader and watch your stocks EVERY DAY, but then don't you have a life? or
(2) Do serious fundamental research initially and be a long term investor.
Never forget that when you play in under $5 stocks, you are swimming
with the sharks.
If you are going to be a LONG TERM investor and not trader of OTCBB stocks, one key question to ask before you invest any money is whether you believe the stock can increase in value five to ten times? If currently selling at $2, could it go to $10 or $20. For if none think so, how will the stock double or triple in value? Many investors will shed 50% of their holdings, you possibly included at such a time..
Another key question: Has the stock been broken since its IPO, and how
many times? For example has the stock already risen from $1 to $5 or more
and then crashed down more than 50%? If so, was this on no news,
good news or bad news?
Since that time, has the company's fortunes, its fundamental picture, improved or have their run out of money?
This is just the beginning for the serious investor. From time
to time we will be recommending some OTCBB stocks, often those of corporate
clients This implies two things:
(1) We may not be objective but also (2) the management has the foresight and wisdom to hire us to help with strategic planning. And if you do invest, remember we advise you do so in a basket of at lesat five stocks, not just one or two stocks. Finally, ALWAYS do it with speculative capital - money you can easily afford to lose and not change your life style.
Of course, it is our hope and forecast you will not lose following the
Astrologers Fund Inc. recommendations, but be fortunate:
Our current two favorite OTCBB stocks are: IHI and DCHTE.
For more information on the microcap market, you may wish to visit our
TO BE CONTINUED
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