Thread: Ask a Broker
View Single Post
Old 02-11-2004, 06:10 AM   #27 (permalink)
bobmsmythe
Crazy
 
Location: NYC
Quote:
Originally posted by Daval
Hey Bob, now my turn to ask for advice.

I have about $2000 CDN that I use to play with. I have a TD waterhouse account and basically I guess I am a Swing trader.

Up till now I've basically been playing with penny stocks on the TSX, mainly with unprofitable microcap companies that are in bankruptcy protection.

Whats your opinion on what I should be in? Whats your thoughts on penny stocks in general and what would be the right way of playing them?

I'd love to get into the RIM's and IBM's and Yahoo's, but at stock prices so high, I just can't afford them, and the $29/trade i need to make back just kills me.
Well, do you want a nice answer, or a good answer?

Nice answer: It's possible that you'll make some money, and you don't have that much to lose.

Good answer: Penny stocks are a fool's game. You're better off going to Vegas. You say you can't afford to get into IBM, but look at it like this:

IBM shares look to open at 99.55 this morning. Call it 100. You could buy 20 shares. If the price jumps by 10% this year, you'll have made $10 * 20 shares = $200 (minus comissions).

SHIT.ob is trading at .01. So, you can buy 200,000 shares, right? You're a big player, right? Really, though, what you need to look at is the percentage move. A 10% move-- to .011-- still makes you the same $200. And, realistically, SHIT.ob is a *lot* more likely to go out of business. Really, you're betting on a company that doesn't have many prospects and hoping that God smiles on it. It's not that hard to get listed OTC, pretty much any company that can't qualify is garbage or in the shitter. Finally, one last piece of information:

The volumes.

What do I mean? So say you want to buy 200,000 shares of SHIT.ob, as I said above. In all likelihood, that's going to *move* the market-- that's a huge load of demand. So instead of trading at .01, the market is going to push up. Say to .012. So now you're paying a 20% premium. And, once your order is filled, that demand is gone, so the price falls back to .01. You've lost 20% already. Now, you get tired of waiting, and you want to sell. Say the price is .011. Same thing happens on the way out-- you drive the price down by .002, to .009. So you've lost .003 total. On your 200,000 shares, that's $600, almost a third of your initial investment. Do you see why this is a problem?

For the amount of money you're talking about, you're extremely unlikely to make a lot of money moving in and out of the marketplace. As described above, you're going to be burning money on commissions. If you get charged $29CDN each way, that's a total of $58 to get in and out. So, assuming you put *all* your money in a single stock, you automatically are *down* almost 3% before you even do anything. So, maybe you're doing great, I don't know. But I'd want to find something more stable to invest in. FWIW, the commissions on junk stocks are generally the same as real stocks.

I've got to run now, market's about to open

Bob
bobmsmythe is offline  
 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360