RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Copy paste attempt failed Well said Maxmoe. Biggest mistake I made was not selling when I should have and riding that down hoping for a rebound back before selling. Cost me tens of thousands. But you learn. I've shared these around for a number of years now...articulated them for myself to help impose some discipline into my investing activities.
Rule #1 Never invest more than you can afford to lose Penny stocks should not account for more than 10% of your total equity portfolio on a fair market value basis. You might accept temporary deviations from this, but not for any length of time. Shift money back into your blue chips or cash to reduce your exposure to risk.
Rule #2 Do not invest in more than 3-5 risky stocks at a time You need to keep a close eye on these investments, so you definitely do not want to have to monitor more than you can handle. I have always found that 3 is a good number, but I can handle an extra 2 without a lot of extra effort if a good opportunity presents itself.
It’s important to note that diversification does not apply here because you are actually making a bet on a particular stock so trying to spread risk is is not the way to reduce risk. Only solid research and managing your exposure can do that.
Rule #3 Keep a close eye on these investments I track my penny stocks using Globe Investor and a spreadsheet and I update the closing stock prices daily. This allows me to quickly see my gain and loss position and lets me decide what action I might take the next day. If the stock moves up or down, it may be time to exit partially or entirely. I also set and record a target exit price when I buy so I can quickly see how I am doing in relation to that.
Rule #4 Do not be afraid to take gains or realize losses. Do not get greedy. Penny stocks often rise quickly and fall back, even when everything else about the company is good. That means you should trim your position when you can take a reasonable profit and sell completely when you achieve your target. You can always buy back in on a pullback if it happens.
Conversely, get out at a pre-determined acceptable loss and learn from your mistake. Far too often the pull back is significant because people are bailing. Do not make the mistake of thinking it will turn around again because it may not and most likely will take longer than you think. It is simply good management to limit your loss to an amount acceptable to you and not an amount that is determined by the market. Accepting a loss is difficult. This has been proven by psychologists. But it is simply imprudent to lose more money because you did not sell when you should have.
Note this also means you should not try to make your money back by averaging down. The risk in penny stocks is too great. Now never say never, there may be a situation where you make an exception, but it should be exactly that. An exception. And it better be based on sound investment principles and not on thinking you will break even faster. Again, pull backs are common, go deeper than you think, and take longer to recover than you think. Worse, while you wait for the recovery, you have “dead money” in the market waiting to resurrect. Do not make the mistake of thinking “it will be different this time” because it very rarely is
In applying this rule, and setting your acceptable level of loss, think risk-reward
Consider a 50 cent stock that you want to see go to $1 a share. If you decide to sell if it drops to 40 cents, then your acceptable downside is 20% and desired upside is 100%. Another way to say this is you are willing to risk 20% to make 100%, a 5:1 ratio. If you say you are prepared to sell at 30 cents, you are willing to risk 40% to make 100%, a 2.5:1 ratio. To me that is not a good enough reward for the risk assumed.
Rule #5 Do not let emotion get in the way of the numbers Greed is an emotion. Fear of loss or missing out is an emotion. Regret is an emotion. Over confidence is an emotion. Falling in love with a story is based in emotion.
Every company has a great story about how they’re going to make money, or better yet, about how they will disrupt their market or change the world. As true as it may end up being, that is an emotional aspect that should take a back seat to the numbers you set as your investment parameters.
Now this is easier said than done because we are emotional creatures. The best way to overcome emotion is to accept you are human and to stick to the fundamentals. Base your purchases on sound research and make decisions based on your targeted numbers and financial constraints. Try and remember that everything else is simply noise.
Rule #6 Keep learning about investing and learn from every trade you make Win or lose, it makes sense to try and understand why you gained or lost money.
If you won, what happened that caused the price to increase? Should you have gotten out much sooner with 80% of the win because the final 20% took far longer to achieve? If so, what were the signs? This is but one of the many questions you should learn to ask
If you lost, why? What did you miss or neglect to do?
Read relevant books, magazines and newspaper sections and keep adding to your learning because wisdom is knowing what questions to ask. Every piece of information you gather makes you a stronger, wiser and more profitable investor, and that should be your overall goal
In summary, these 6 rules are really about managing the risk associated with investing, and in investing in small cap stocks in particular. Seasoned investors know you can never eliminate all risk, you can only ensure you are willing to accept the risks associated with an investment.
This means setting and adhering to some basic rules, and finding out all you can about your investment. Why is it a good opportunity, why and how will it increase in value, and when will you sell are the key three questions to answer. Do this in a disciplined way and you will effectively manage your investment risk.
Maxmoe wrote: Lesson is you have to SELL. You sell half when you have a double and you no longer have any capital at risk. You also set a "stop loss" level. Pick one. If it gets to that level you sell. Period. Limit your losses. Recognize when you are wrong, you are wrong. Accept your misteaks and move on. Accept responsibility rather than blame anyone else. That's your lesson you obviously have not yet learned. I bought oil stocks in the pennies at the height of the Covid crash. I bought ATH ar 11 cents. I bought bte at 29 cents. I sold half of both as they took off and left a LOT of money on the table but I got all my investment out. Ath went from 11 cents to over $5 and I still own it. "Free". Bte went over $8.00 but I sold it all around $6. So ....not all penny stocks are "no good" , but you need a "good" strategy. Buying millions of nxo, or any penny stock, is not "good". A basket is better. A basket that limits penny stocks to maybe 20% of your portfolio is better. Do some research and don't be afraid to get some help. I would get advice from someone that makes money, not someone that loses even more than you do. What's the point of getting advice from someone that 100% agrees with you. You may as well just talk to yourself !!! That's a life lesson, not just investment advice. AND USE A STOP LOSS. Good Luck