Don't I Know You From Somewhere?
If any of the following situations look familiar to you, you may want to consider our quick fix. For every situation, there is an appropriate response that can maximize your benefit, and limit your loss. Take a look at some of these for example.
Holding A Dog
Your stock continues to sink, week by week. You keep thinking that it can't go any lower, or that it will rebound eventually. Volume dries up, the price flat-lines... Rumors of reverse splits materialize. The stock is below minimum listing requirements for its parent exchange.
Diagnosis: You are probably holding a sinking ship. You may think it can't go lower, but it can. It can go to zero. Usually after a reverse-split the price continues to decline. If shares are bumped from their exchange two things will happen: the price will take an immediate hit, and trading volumes will dry up so it will be harder to sell shares. Usually in these situations it is better to admit you made a mistake and get what capital you have left out of the investment.
Your associate tells you about a penny stock that is going to make a serious move. They've got a patented technology that sounds flashy, although even after he explains it neither of you really understand what it does or how it works. It is going to set a new standard in the industry, and the potential market for their sales is in the billions. His tip comes from an 'inside' guy at the company. He doesn't know the official title of the inside guy, and he can't tell you the company's revenues, employee size, management structure, or how long they've been in business.
Diagnosis: Your associate may be the victim of a 'promotional' stock. Be careful! It's catchy. You are about to become the next victim in the line, and you'll probably infect a few others too. And when they tell the story of this miraculously undiscovered penny stock, they'll be saying this news all comes from an 'inside guy' at the company. Almost always these situations turn out badly. Things are not as they seem. You aren't taking a gamble on a stock with some potential. You are one of a hundred targets in a carefully constructed and well-planned promotional scheme to drive the share price up. These schemes are immoral, illegal, and... they happen all the time.
Message In A Bottle
You read a detrimental comment in a chat room or message board about a stock you hold or are thinking of buying. It scares you and makes you second guess your investment decisions. You see that other people have responded in agreement to the posted message.
Diagnosis: Maybe there is some truth to it, maybe none whatsoever. Check with some official sources to confirm or deny the comments. Look at the latest press releases if it is a factual matter. Call the Investor Relations department if it is a theoretical or rumor-based matter. Consider all message board and chat room information dishonest until proven honest.
Shooting The Moon
Your stock has been soaring, and your profits are significant, although you still haven't sold your shares. You like the company and had intended to invest for the long-term, although you hadn't expected such strong performance. If the stock has spiked this high, it's value must be getting recognized, so it could probably go higher.
Diagnosis: The stock may be ready for a short term pull back. Profit-taking sales are inevitable, and each time the shares go a little higher the number of people thinking about taking their money out increases. After a strong run-up shares usually suffer some weakness, and if the rise was based on a press release or rumor that won't significantly impact the company's ability to meet their goals, shares may be prone to coming all the way back down to their previous level. You may want to sell half of your holdings to lock in your gains, and let the rest ride.
About the Author: Peter Leeds, one of North America's leading Investment Coaches, is a self-made millionaire who has created his fortunes on the stock markets. He has also empowered thousands of individuals to do the same. He offers sites like http://www.pennystocks.com