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Todays is : Wednesday, 08 September 2010
Newbies In the Penny Market


It is a fact that newbies, people first entering the penny market, do not know what they are doing. Not only are they inexperienced but often time worse, they are incredibly naive and trusting, and don’t believe or understand there are people in the markets that will take all their money, their house, car and everything else if they can.

There are four tough lessons for a newbie in the markets to learn. They are:

1. Do not take anything you hear or read at face value
2. Cut your losses, no matter how painful it may be
3. Never fall in love with a stock
4. Always make your own buy and sell decisions.


Lessons 2 and 3 above are inter-related and require the individual to toss emotion out the window and face reality. Learning these lessons however often saves a lot of despair and gut-wrenching soul-searching in the long run.
Folks fail to follow lessons 2 and 3 above because facing reality is often unpleasant, especially after you have just bought a stock and watch it drop precipitously in a day or so, finding you’re down a grand or two before you can snap your fingers. People rationalize, hope, pray, and pump each other up on the chat sites in an effort to make the PPS increase by the sheer force of their desire to see it go up.
The phrase, Falling in love with a stock actually refers to someone who is blind to what is going on with the stock, much like someone who has just fallen in love. He or she is purposely oblivious to the other person’s faults and bad habits. Eventually reality must be faced in the stock market, just as in any love relationship.
CSHD was a prime example of people refusing to face reality. There were thousands of people, still are too, that continue to claim today the company is coming back, that the stockholders will eventually make money. It was so flagrant with CSHD that those folks that went completely off the deep end were labeled CSHD cultists. If you criticized them on one of their chat sites, they’d gang up on you like buzzards on road kill, even kicking people off the site if they were too vocal in their criticism of the company and its stock.

Lesson 4 - make your own buy and sell decisions refers to people – you see them on the penny chat sites – that lack confidence in their own decision-making abilities. They ask other folks what they should do. Relying on other people’s opinions to make buy and sell decisions in the penny market is one of the fastest ways possible to go broke. You seldom know whom you’re talking to, his experience level, whether he’s lying or is a total fruitcake; or if he has his own axe to grind. It could well be some precocious twelve year-old jerking folks around for grins and giggles.
As far as controlling your emotions, each individual has to learn how for himself. I don’t know of any step-by-step method to teach you. You simply have to make a concentrated effort, initially anyway, to avoid the mistakes I listed above. Selling a stock you have lost money on, especially one involving a considerable amount is painful. The first time just do it. Once you have done so a few times, it becomes less painful. I won’t say it becomes painless but you can learn to live with it without ruining your entire year. If you can’t learn to let go of stocks that you know in your mind and gut that are lost causes, the penny stock market is not for you.

Cutting your losses, willingly selling a stock at a loss can be agonizing. Most newbies and a lot of experienced players too find it very difficult. They’ll hold to the bloody end, when the company goes under or pulls a reverse split.
To cut my losses, I set my loss limit at 30% of my purchase price. I follow the rule religiously except for one exception which I’ll get to later. So once I buy a stock, if the PPS drops by 1/3, say from .0100 to .0066, I sell it, regardless of rumors, expected news or what folks say on the chat sites – remember you are talking to a lot of people on the chat sites that have never learned the lessons above, and probably never will. Those folks soon run out of cash and are quickly gone from the penny markets.
You can decide what you feel is an acceptable level of loss, based on how much money you have to play with and your pain threshold how much loss on a stock you can live with, to cut your losses at 10 or 20% for example.

The one exception to setting a loss level is if you find a stock that you just wanna throw some money at in a wild chance you will hit the big time. As long as you understand the odds are heavily against you, you’re not gonna get crazy over the stock and you can afford to lose every cent you put into it, that’s OK; as long as you don’t do it every week.

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