Is this a viable strategy?

[RazzaDazzla]

Interesting.

Find me a universe of these wonder stocks that have enough cash on their balance sheets to ensure they survive for the next 12 months.

I'll then divide my capital into equal units and invest equally. I might even set a stop loss of 50% or something like that?

I can't think of any other ways to make sure you get out of the losers and onto the winners.

 

[yonnie]

Interesting.



I doubt if you find a lot of stocks with enough cash for the next 12 months. One thing the penny stocks have almost all in common is that they`re losing money every year.
Also they were not able to raise a lot of cash during the financial meltdown but have done so recently.

But despite their often precarious financial position, it is amazing how few companies go belly up every year.

Having a lot of experience trading penny stocks, I probably would not tolerate extensive losses after buying a stock, but rather fight a rear action and always try to sell at breakeven and buy back at a lower price.
Its a lazy system so at least I can put some effort into limiting the losses and still feel that I`m a trader!!!

 

[Synergy]

I haven't given this any more thought since bringing up the idea, but thinking about it again now, I probably should have.

yonnie, I think the extreme volatility with penny stocks is the key. Moves are fast, and often based on rumours and forum hype. I think that unless you had good info/research that a stock was going to go belly up, you'd have to ride out the dips to catch those that rocket up. Often the biggest rises are after lows are made, when interest is built because people start to believe 'it can't go lower'.

Obviously those that pay off in the long term have more than hype behind them, but at 5c they all look much the same. Is there a rich volunteer who wants to buy up and give us quarterly updates?

 

[RazzaDazzla]

I'll volunteer!

If every ASF member can deposit $10 into my bank account I'll get the ball rolling

 

[yonnie]

the largest benefit to penny stocks in general is coming out of a economic slump and getting into a raging bull market.
these share values will increase like any other stock without a success story.
but if there is a story behind it as well.......watch out.

good info about cash strapped companies are in their quarterly announcements and you can take the appropriate action upon reading them.
I know that the losses are not that large %-wise in the whole picture.
but if you would channel the capital taken up by those 46 losers into winning stocks @ 830%...........

well to cut a whole story short, I have a lot of trust in this system and it wouldn`t surprise me at all if this system would return 100% per year over the cycle.

 

[yonnie]

100% per year in experienced hands that is..........

 

[yonnie]

I`ll ramble on.........

I ran a test and it seems like there are more than 1,000 equities under 10 cents.
now included in this figure are company options and partly paid shares and if we exclude those I think we still end up with around 700 companies.
far too many I would say.

how can we cut down on the number of companies?
1) only chose companies which have low debt and enough cash to survive the next 6 months; estimated 400-450 companies left
2) you might set a condition that the companies you invest in must have had a good run in the past
from memory AEX: 2 to 10 cent, then 2 to 6 cents, then 2 to 6 cents......400% profit tops in 1 cycle, not really 830% on the profitable stocks from Synergy is it.....
if it couldn`t do it in the past, why would it be able do it this time?
it is actually still hovering around its low, so no interest at all.
3) you might only want to invest in companies which are now at least 2-3x yearly low and where the volume has been steadily increasing in the last 6 months.
this shows there is interest in the stock and that is important for further rises in the future.
4) you might decide to invest only in companies with a lower price than 5 cents or between 5-10 cents etc.

I would go for 1 and 3; if still too many stocks, 2 as well.

 

[RazzaDazzla]

Yeah, that's the million dollar question... how to choose the stocks.

Maybe you just randomly choose 50 stocks and spread your capital evenly.

Not sure how to best make the list to a more manageable 50 or so.

 

[yonnie]

I certainly would not choose 50 stocks randomly; for instance I would not like my chosen company to go belly up through lack of funds.