"Investors should remember the 'three R's.'
Resist the impulse to buy,
Research your investment and
Report fraud when it happens."
Mr. Hoerl, SEC on Microcap Fraud
I am writing this while the SEC crackdown on Microcaps is front page news. I strongly applaud its action in general, and feel it will help make investors more careful. From a cyclical viewpoint, we were correct in forecasting that there would be an explosion of activity from January to March 2000. We are expecting another bull run (although less wild) from Mid October until the end of 2000. Remember, Microcaps rarely lead Bull markets, but follow in most cases as investors are willing to accept more risk. Consider the following five points carefully before you invest:
1. First, decide what percentage of your investing/trading capital will be allocated for speculative high risk/high reward investments. Know BEFORE you buy whether you are buying for a long term investment or a short term trade. If you are not experienced in microcap investments, then work with an independent, professional licensed financial advisor.
2. Choose your stocks carefully. If trading, treat microcaps like non-expiring options and just trade one or two stocks at a time. If investing, diversify and spread your risk with small investments in a basket of five to ten stocks.
3. Understand Money Management and take profits: "If you ignore your
profits, they may just go away." Remember for every Microsoft, hundreds
of small caps lose in the long run.
Risk means you can lose money as well make money. You should be willing to accept losses, which means being wrong. Don't double up on losers to try to get even. If, however, you believe a stock is undervalued and represents a reasonable risk/reward, then you may double up if this was your original plan.
4. Take advantage of market cycles. Buy a little ahead of the crowd, but more important, sell before they lose interest.
5. Have a plan and stick to it. Know in advance if you are investing
and/or trading (don't let a losing trade become an investment).
One classic strategy is to sell 1/2 if a stock doubles or triples and then hold for the long term the rest.
I repeat, ONLY and ALWAYS use risk capital, money you can easily afford
to lose without materially effecting your life style.
What are the odds? At best, only one in 10 start-ups succeeds. Then there is the advantage of using astrology. We believe this improves the odds considerably. Fortunately, most start up companies are eager for any investors and therefore astrological data, such as the time of incorporation, first trade, president's birth data, is often readily forthcoming with a just a phone call from a potentially serious investor.
For more information on the Microcap market, visit our Microcap web links as well as Tips for investors to avoid bogus stock pitches and the SEC's Microcap Stock Guide for Investors.
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