Todd Durrant’s Random Thoughts
Follow the efforts of a creative, crazed entrepreneur.

Playing the Stock Market

With as little income as I’ve had during the last year, you’d think it’s a horrible time to dabble in the stock market.   Well, that is probably true, but this is how it came about in my case.   In the autumn of 2008 I saw the US stock market plummet horribly.   Though that may seem like a signal to “bail out!” fast for people who have retirement accounts and investments, I was not a person in that situation.  I had no retirement account and had never purchased a stock in my life.  I’d invested everything in raising my family and trying to grow a business.   So, there I was, having lost nothing due to the crash, thinking that if there was ever a time to get into the market, this was it!

The stock prices were all basically “on sale” even with the solid companies.  I’d just had one of my own business ventures crash horribly and had lost tens of thousands of dollars that would take many years to pay off, but I had some old DVD inventory to dump.  It would take a while to sell the old DVD’s and I figured I would take whatever little money I could make from those and put it into stocks.   I opened an account with Sharebuilder and began buying stocks and ETF’s a few dollars at a time.  Sharebuilder was a great online service for my investment approach because they allow you to purchase partial shares, which comes in quiet handy if you want to buy into a company that has expensive shares.  For example, I can put $20 into Google stock instead of having to come up with $400 + just to buy a single share.   Plus, their fees are quite reasonable, based on what level of investing you want to do.   You can also set up an automatic investing schedule to put a little away every week or month.   OK, before I sound too much like an advertisement for Sharebuilder, I just want to say that I picked it because it was a fit for me, and not necessarily because it is the BEST way to invest online.  If anybody reading this decides to try them, do send me a note and I’ll figure out how to “refer” you so I get a trade credit.

I’m approaching the one-year mark for my investments in my Sharebuilder account.   On October 2nd, 2009 it will be exactly one year.  The market has gone up since then, so with very little effort or thought I have seen my stock values grow.   I know that diversification is very important with investments, but I probably diversified just a bit too much, spreading my little amounts through so many different stocks and exchange traded funds that I don’t have a large amount in any one basket.  It’s a safe approach, but of course I’ve looked at the ones that have performed very well and wish I’d had a few thousand dollars in those particular ones rather than $40 or $50, if you know what I mean.  A 25% growth on $10,000 takes you to $12,500 which is a nice increase.   But it just doesn’t seem as glorious when your $50 earned 25% to reach $62.50.

As of today, my account has increased 25.90% overall.   There were a couple stocks that I purchased which tanked as the companies went bankrupt.  There have been a couple that doubled (100% increase) so I sold them to pick up the profit before they adjusted back downward.  There are some big winners that I’m holding because I think they’ll be great long-term.  There are some that I’ve had a long time that have not increased much at all, but they are solid companies that are not going anywhere.   So there you go!  I have a retirement account now!   I don’t intend to cash out anything from this account until I really need to.  It is simply put aside for the future.   It wouldn’t last long if I were to cash it out now anyway.

I don’t have any more used DVD’s to sell and don’t have much to continue putting into my retirement account, so I ‘ll just watch and wait for a while, maybe shuffling things around a bit if it looks beneficial.   In the meantime, I do need to make a living, so on top of continuing my work with my music business, A Different Drum, I’m also teaching some pop music lessons.    But being the horribly addicted entrepreneur that I am, I had to find something else in which I could put my hopes (even if they are false hopes).   So, now that I’ve had a little experience with stocks, I decided I’d try out the much more risky side of investing– penny stocks!

Now any paid investment adviser would tell you to stay away from penny stocks.   Why invest in small companies, many of which are merely exploratory, still in research stages, and which may not even have any kind of stable revenue stream?   For the long term investor trying to build a retirement, staying away would be good advice.  Usually when you’re investing for retirement, you put your money into the pot and ignore it, hoping that it builds interest over the long term so that twenty years down the road you’ll be in great shape.  But if you ignore your penny stocks, you’ll miss the chances to cash in, and eventually you may very well lose a lot of what you invested.  Few of those penny stock companies break it into the big time.   If / when they do, you could have made the investment move of a lifetime.

So why would I want to dabble in this market?  Well, I’m considering it something of a part-time job, and I hope to make money.  That requires that I check the stocks daily, watch for every little move, and jump at the opportune moment.   Sharebuilder does not allow for buying penny stocks (OTC and Pink Sheets).   Thus, I found another online investment service that does allow trades in those markets.  I opened an account with Scottrade.   The fees are a bit higher, but I hope to make up for those higher trade fees with higher profits.

Here is why penny stocks are tempting.   When they move, they generally move in a higher percentage, simply because the stock prices are so low to begin with.   For instance, if you own 10,000 shares of a stock worth $.01 (one penny) and it goes up to $.02 per share, then your 10,000 shares just doubled in value!  Those kinds of moves are fairly regular with penny stocks, but then it can jump just as quickly down to $.005 as well.  That’s why you have to be sitting at the keyboard, checking frequently on your stocks.

I’ve noticed that the penny stock market moves up and down based on a lot of investor games.   There are a lot of people out there who work to hype a particular stock as if it is the “next big thing”.   Most likely, this person (or people) own many shares in that particular company and want to see it spike so they can sell their shares.   Suddenly the stock gets all kinds of buzz and you see a spike.  It can jump up 200% or more in a day or two.    Of course, the people who created the hype aren’t there for the long term, so they cash in fast.  By the time an amateur like me notices the stock, checks the graph and sees that it had a 200% spike, it’s too late.  You missed the boat because it’s going to drop fast once everybody cashes in.   Yeah, I learned that with a couple choices already.   You have to own that stock before the move or you’ll miss it.

I’ve also noticed that penny stocks move a lot based on news bulletins posted by the company itself.  This has been particularly true with the small pharmaceutical companies lately.   The moment they announce that they are hitting another stage of clinical trials on some new cancer drug, or diabetic drug, or swine flu vaccine, they spike.   Then the price declines (again, the sell-off) until the next piece of news presents itself.  Investors like to think something is happening with the company.

Another trick I’ve seen people play and have tried once is to watch for a suffering stock to hit rock bottom.  You wait and wait as it goes downward until it levels out.  I have 300 shares in one company that I purchased at $.10 each.  Three years ago it was at $300 per share.  Now, I have no delusion that it will ever get back to where it was three years ago, but even if it were to bounce back to $1 per share, I will have seen my $30 turn into $300 which is pretty snazzy (minus trade fees).   Yep, once again, if I’d had $3000 to invest instead of $30 it would be a much nicer pile of earnings for a part-time job.   But alas, when you have so little, you have to start small.

Well, that’s it!  You’ve now heard everything I know about the stock market.  Those of you who have made a living with this stuff for many years are probably laughing at my simplistic view of things.   Go ahead!  Laugh!  I hope that I’ll be laughing too, even if this meager attempt to make a few extra dollars falls flat, because I’m pretty used to my ventures not panning out as planned.  But hey, I’m hopelessly addicted to making a living on my own and I’ve had no luck getting a “standard” job anyway.   It makes me happy to think I’m trying something.

Now, here are a few of the penny stock plays I’m making at the moment.  Consider them to be valuable notes for silly investors:

GVBP — my biggest gainer so far.  Bought at .15 per share.  It is currently at .65.  Set to sell half my shares at .75 and hold a bit longer on the other half.  You hate to bail too soon, but you also hate to risk a sudden drop.

YASH –Bought this one at .10 per share when it appeared to “hit bottom”.  It turned up a bit, but then dropped close to the bottom again.  Currently at .16 per share.  Waiting to sell.

SMAS –This one is a silly game stock I bought just to test something.  I bought 200,000 shares at .0001 (cheapest possible stock).   It recently bounced up to .0002 only for an hour here and there.  I have it set to automatically SELL if it bounces again to .0002.   Doubling $20 to $40 in one cheapo stock.  Minus fees, I’ll make $6, but it is only a test to see how fast Scottrade can execute a sell order in case of a short-lived bump.

VSPC — Bought this one today and looks to be on a steady increase.  Watching it…

AEXP — Wanted to buy this one first thing this morning, but was out of money so I missed today’s growth.  It jumped 15% today.  Maybe it is still worth a try later this week, but I suspect it may drop before too long.  We shall see.

-Todd

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3 Responses to “Playing the Stock Market”

  1. Hi, I’ve started to put together a few bits and pieces on spread betting if anybody is interested Trading Spreads any comment of feedback would be much appreciated

    Sean 🙂

  2. Congrats on the 25% performance! I hope that is after fees and I hope the short term capital gains taxes don’t kill your profits. All the pros track their performance against the S&P500, so, it’s a good benchmark to see if you can beat the market after fees.

    Penny stock = casino as you know but hopefully you will have some big winners. I think it is very hard (maybe impossible) to turn a profit day trading like that with small bets simply because the fees are so high. I’m trying to average a 25% gain per year (my year end is next March) which is no easy feat. Warren Buffet, the best investor in the world, made 35% a year so anything about 20% total is doing very good. I personally am working on getting my first $10,000 into the stock market so I can grab that $2,500 a year. $10,000 sounds like a lot but it never stopped me from buying a car, building a studio, or releasing and promoting music. If I think as my stocks as a purchase like that it’s much easier to sock the money away. It’s my goal to put $100,000 in the stock market over the next 10-15 years and get 25% per year on the money. Here’s to our future riches!

    If you haven’t already, I would look up AONE. It just went public and has a very bright future IMO.

    Monty

  3. Todd,

    I just want to say when the economy is bad and when stock prices are down, it is actually an opportunity. The most basic philosophy is ‘Buy Low, Sell High’. Well, there you go.

    You did the right thing. As for penny stocks, I have little to say on that except that I am far more risk adverse than you are.


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