Why Did The Monkey Fall Out Of The Tree?
Why did the monkey fall out of the tree? When we posed this question to several people we received a wide variety of extremely elaborate scenarios as to why the monkey actually fell out of the tree. Some went as far as explaining the socio-political relationships between the monkey and his peers. One came up with a wild scenario about aliens and ancient Aztecs. Some mentioned the positioning of the Sun. Guess what they all could have been the reason why the monkey fell out of the tree, because by some long shot of a chance, it could have happened. But those answers were not actually the correct ones.
We posed the same question to an associate’s young son of 4 years old. “Mikey, why did the monkey fall out of the tree?” Mikey, not bothering to look up from the toy truck he had running over some army men said quite simply ” He was dead.” And there’s your answer. Simple, precise and straight to the point.
Sometimes, the simplest truths are the hardest to see. We are blinded by glitz, glamour and visions of big money. This brings us to our point of all this. Why did the stock tank?
What To Watch Out For When Trading Penny Stocks
You have probably seen press releases like “OTCBB: WXYZ in talks with Fortune 500 Company to implement its revolutionary new blue widget” or “WXYZ projects $49 Billion in reserves from latest report” or “WXYZ implements plan to launch in $Trillion market”. These are catching headlines, and sure to start a buzz on the markets. Especially if there is a promotion running behind it. But how feasible are these press releases? Can the company actually do what they say?
There is a thing called “Saf e Harbor”, that public companies can use to protect themselves when talking about things that they hope will happen or projecting outcomes.
Here is an example of one, that goes at the bottom of every press release as a standard.
“Statements contained in this press release and corporate information relating to future results, events and expectations are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve known and unknown risks, uncertainties, scheduling, re-scheduling and other factors which may cause the actual results, performance, estimates, projections, resource potential and/or reserves, interpretations, prognoses, schedules or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, among others, those described in the Company’s annual reports on Form 10K on file with the U.S. Securities and Exchange Commission (“SEC”).”
Now don’t get me wrong, for you short term traders, you love this type of headline, because you don’t plan to stay long in the stock. The headline creates a great buzz, and if backed by a promotion, a lot of buzz. This makes for a great opportunity to make some quick trading profits. However, there are those that could fall long due to the headlines. You may think to yourself, “wow this company could go big!” That is the first mistake.
Most of the time what happens is by the time you see the headlines the stock is already up significantly, you hit the message boards to see what everyone else is saying and decide to buy in at a huge premium. The stock drops and your out of money.
Take a look at this example chart below. We have no opinion one way or the other whether this example company is a good or bad investment or the ethics of the management. It is merely an example.
Note the huge spike in price on this stock. If memory serves this one was pretty heavily promoted too. Looking back in history at what actually happened we noticed that the company issued a barrage of press releases at that time. The headlines weren’t too extravagant. However, they obviously helped to have a positive affect on the stock price. We will attribute the short term success the stock price had to the actual stock promotion. Also note, that this nice price spike lasted about 4 days going from .05 to .83. Yes, you read that right. A 16 Bagger. For the short term traders that got in before the drop, they made out like bandits, congratulations. For the others, well, hopefully you minimized your losses and lived to trade another day.
Going back to the point about press releases, if something seems too good to be true…well, look for yourself. Head over to http://www.otcmarkets.com and look at their filings. If something of significance is happening with the company, or has happened, then the company must report it in an 8K filing. It will also be disclosed in their latest 10-K or Q filings. While your in there, take a look at how much the company has in it’s bank account. If it shows $13 then there is a good chance that whatever the company is trying to do just isn’t going to happen. Treat it as a short term trade and move on.
On to another point. Wouldn’t it have been nice to catch that one on the way up? Most people, if they saw it all, saw what happened after the fact. Keep in mind this stock went from .05 to .83 in 4 days! So how do you increase your chances of catching something like that? The easiest way is to join a good penny stock newsletter. Whether its free or a paid subscription. The paid premium ones obviously tend to be better.
Here at PennyMotion we syndicate only the top free penny stock newsletters on the internet. We have chosen them for various factors that include how long they have been around to how successful they are at advising their readers of profitable situations. If you are looking for a premium penny stock newsletter one of the best that we have found is Penny Stock Dream Team. They regularly update their readers of profit potential in the stock market. They have been around for quite some time and have a knack for sniffing out good situations. You could easily make back the price of the yearly subscription with your first trade. No joke.
Let’s go over this one more time quickly. Before you believe anything, check it out in the company filings. Don’t fall for the headlines. Any company that would lie in an official SEC document are out of their minds, considering the type of trouble they could get in. If the company is on the Pinksheets and has no filings, consider it extremely high risk and if you decide to trade it, get in and get out. After reading the filings and there is nothing there to justify their claims, then there is nothing there. Simple fact and truth, no matter how many press releases a company issues. If something seems too good to be true, then guess what? It probably is.
Remember folks, do not do emotional trading. Fear and Greed can be big profit killers. More then one time I have held a penny stock that I was up significantly on and decided to hold out of greed.
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