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A word of caution on penny/small Cap Stocks


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#1 Bullhunter

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Posted 27 October 2018 - 12:04 PM

The most important point is the following:

 

7a. clever money: buying when price going up.Dumb money selling when price going up

 

Set yourself an entry point. A month new high is as good as you can get (all 10 baggers would have reached a 3 month new high sometime in their past). Don't ignore position sizing and stop losses (risk management)


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#2 Polly

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Posted 23 October 2018 - 10:42 AM

Hi Polly, 

 

Yikes.....

 

I invested in Metrofile.  This would be classified as a penny stock, correct?

 

It is 16% down since I bought but then again they paid dividends out recently.

 

:(  I know it will take a few months for it to recover but I still get worried...............

 

Other Penny stocks I invested in:  Greenbay but that is up by 3.26% - I bought when it dropped to 92c.

 

And Steinhoff off course: 12% down...

 

 

Yes as a newbie - I did find these stocks attractive............

 

I am so occupied that I don't even have time to keep an eye on my investments.  

 

Maybe I should continue investing like I always did lol in the bank - I got my first Mil that way................

Metrofile

This one may qualify for 6b or 6c....bought back back management of takeover


Edited by Polly, 23 October 2018 - 10:42 AM.

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#3 Motivated

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Posted 23 October 2018 - 09:51 AM

It seems new investors get first attracted to penny/small cap stocks when they first enter the trading world :

 

Purpose of this thread is not to scare you off from investing in them but just a word of caution. here goes:

 

1. In South Africa small caps always look attractive with good P/E , net asset values etc but they are the least liked shares by fund managers. 

2. Liquidity always low on these type of stocks IE you will always find low volumes of trade compared to the larger capped stocks( top 100 shares on JSE)

3. Point i am making on 1 and 2 above is that  if a fund manager wants to dispose of his holding in a particular small cap stock and  because of low liquidity floor may never have a bottom. If you on the wrong side of the trade , you could get burnt or feel a lot of pain.

4. In bull markets these shares will rise but at a slower pace than large cap stocks

5. In bear markets they fall at a faster pace than the larger cap stocks.

6. If your portfolio contains 10 small cap stocks the chances are :

a. one out of 10 may succeed to become a winner and turn in to a larger cap stock going forward at least 10 years. A winner

b. One of the 10 may be a take over target because of its low value. Here you may win

c.  One of the 10 may be bought back by management and delist You may just break even or may some money

d. The other 70% in my opinion will make you feel pain, lose money , go out of business and most important of all you could have better used your funds to invest elsewhere.

7. Two types of monies when investing. Clever money and dumb money. Always try to follow the clever money. How do you know what is clever or dumb money?

a. clever money : buying when price going up.Dumb money selling when price going up

b. dumb money : buying when prices are going down . Clever money selling when price going down

 

I have a few dogs in my portfolio and ive paid school fees on them. Learnt my lesson the hard way. 

So newbies im giving you a chance not to pay school fees. Take the lesson or shove it, choice is yours.

Hi Polly, 

 

Yikes.....

 

I invested in Metrofile.  This would be classified as a penny stock, correct?

 

It is 16% down since I bought but then again they paid dividends out recently.

 

:(  I know it will take a few months for it to recover but I still get worried...............

 

Other Penny stocks I invested in:  Greenbay but that is up by 3.26% - I bought when it dropped to 92c.

 

And Steinhoff off course: 12% down...

 

 

Yes as a newbie - I did find these stocks attractive............

 

I am so occupied that I don't even have time to keep an eye on my investments.  

 

Maybe I should continue investing like I always did lol in the bank - I got my first Mil that way................


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#4 Polly

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Posted 21 October 2018 - 06:06 PM

This Share is as slippery as the EFF. One set of good  bad results and clarity on where and what is going to happen with the legal issues and it could bump past  below R .50 in a day minute

 

on the contrary......


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#5 Ms Jet

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Posted 21 October 2018 - 04:10 PM

This Share is as slippery as the EFF. One set of good results and clarity on where and what is going to happen with the legal issues and it could bump past R 5 in a day...

Hahaha, that is too funny....it could or it could slip down...I still wonder if it could go under by Jan 2019 or if likelihood is survival...but suppose still guesswork..As VEB said April next year everyone has a presumption SNH will still be in business then...Interesting thread...


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#6 Chris101

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Posted 21 October 2018 - 02:03 PM

Lets look at steinhoff..

 

Clever monies sold from+-  R80.00 right down +-R2.00  ( has to be fund managers)

 

Floor reached??  no one knows

 

Funds buying?  nopes there mandate wont allow then yet. 

Take over target...definitely not for next 2 years

Liquidity... good liquidity 

 

Conclusion:

 

Any clever money buying?  I said it in the Steinhoff thread about 6 months ago.. I will only invest in Steinhoff if it breaks R5.00 to upside in good volume where i will be confident clever money is piling in. Otherwise no floor as to how low this one will go..

So for time being its in one of the 70% bracket mentioned in my penny stock thread.

This Share is as slippery as the EFF. One set of good results and clarity on where and what is going to happen with the legal issues and it could bump past R 5 in a day...


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#7 Polly

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Posted 21 October 2018 - 12:02 PM

Lets look at steinhoff..

 

Clever monies sold from+-  R80.00 right down +-R2.00  ( has to be fund managers)

 

Floor reached??  no one knows

 

Funds buying?  nopes there mandate wont allow then yet. 

Take over target...definitely not for next 2 years

Liquidity... good liquidity 

 

Conclusion:

 

Any clever money buying?  I said it in the Steinhoff thread about 6 months ago.. I will only invest in Steinhoff if it breaks R5.00 to upside in good volume where i will be confident clever money is piling in. Otherwise no floor as to how low this one will go..

So for time being its in one of the 70% bracket mentioned in my penny stock thread.


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#8 Polly

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Posted 21 October 2018 - 11:55 AM

Would the same logic apply to the likes of AEG? 

 

For sure without a word of doubt. 

 

I said 50:50 r/r ratio if you look at the AEG thread.  belly up or 20 bagger.

 

One need to bring odds in your favour when you invest in these penny shares.

 

Lets look at 11 points a mentioned.

 

1. takeover target...definitely so past that test

2. Liquidity... very liquid so pass that test

3. Fund buying/ selling and clever /dumb money

This is the key.

Clever money continued to sell from R+-6.00 right down to 1c.. Floor reached??  definitely...Now i think clever money are buying with good volumes. If you bought lower than 3c you probably got the odds now on your side. Any higher price you paid, risk is on your side. 

 

Ones got to look at big picture. AEG share price collapsed was only due to action taken by AEG management to have the rights issue price at such a low level. It was make or break scenario by Management to get rid of debt completely which they succeeded. 

60% of companys shares are now in a few funds hands. 

 

This scenario reminds me  to what happened to Super group in 2008. Was trading at +-R18.00 and went into problems.  3 rights issues later with last one being at  40c  and share price tumbled to 45c. I bought a bucket full at 50c and held for a 10 bagger in 2007. Today trading at R40.00 after a 10 for one consolidation ..So needs to go to R50.00 for my 10 bagger...Why did i buy? Allan Gray ( Fund manager)took up most of the rights and have been increasing their stake over the years) .This was the clever monies.

 

So i also think Allan Gray increasing stake here slowly in AEG so they know its got value...Odds definitely now in side of those who bought at 3c

 

I do own AEG  ..average cost about 3.5c now... Will only add now once we break 10c to upside and then 20c to upside


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#9 Spell Jammer

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Posted 21 October 2018 - 09:27 AM

 

b. dumb money : buying when prices are going down . Clever money selling when price going down

 

 

Would the same logic apply to the likes of AEG? 


Edited by Spell Jammer, 21 October 2018 - 09:29 AM.

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#10 Shi

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Posted 20 October 2018 - 04:17 PM

Good advice Polly. Lots of horror stories out there for newbies to learn from.


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“One day Alice came to a fork in the road and saw a Cheshire cat in a tree. Which road do I take? she asked. Where do you want to go? was his response. I don't know, Alice answered. Then, said the cat, it doesn't matter.” - Lewis Carroll

#11 Lionelza1

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Posted 20 October 2018 - 01:11 PM

Love this thread! i now understand the school fees comment......"Take the lesson or shove it, choice is yours." hahaha awesome

 

Personally, i cant wait to get out, this market is scarier than my wife!

 

Thanks for sharing


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#12 Polly

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Posted 20 October 2018 - 11:44 AM

forgot to add:

 

Who makes out markets?

1. Fund managers

2. Punters

3. Man in street

4. Clowns who take investing advise from their barber and taxi drivers

 

If you look at the big picture, you will know the answer.

 

And once you know the answer, you will know why you will lose money in small cap stocks.


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#13 Polly

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Posted 20 October 2018 - 11:35 AM

It seems new investors get first attracted to penny/small cap stocks when they first enter the trading world :

 

Purpose of this thread is not to scare you off from investing in them but just a word of caution. here goes:

 

1. In South Africa small caps always look attractive with good P/E , net asset values etc but they are the least liked shares by fund managers. 

2. Liquidity always low on these type of stocks IE you will always find low volumes of trade compared to the larger capped stocks( top 100 shares on JSE)

3. Point i am making on 1 and 2 above is that  if a fund manager wants to dispose of his holding in a particular small cap stock and  because of low liquidity floor may never have a bottom. If you on the wrong side of the trade , you could get burnt or feel a lot of pain.

4. In bull markets these shares will rise but at a slower pace than large cap stocks

5. In bear markets they fall at a faster pace than the larger cap stocks.

6. If your portfolio contains 10 small cap stocks the chances are :

a. one out of 10 may succeed to become a winner and turn in to a larger cap stock going forward at least 10 years. A winner

b. One of the 10 may be a take over target because of its low value. Here you may win

c.  One of the 10 may be bought back by management and delist You may just break even or may some money

d. The other 70% in my opinion will make you feel pain, lose money , go out of business and most important of all you could have better used your funds to invest elsewhere.

7. Two types of monies when investing. Clever money and dumb money. Always try to follow the clever money. How do you know what is clever or dumb money?

a. clever money : buying when price going up.Dumb money selling when price going up

b. dumb money : buying when prices are going down . Clever money selling when price going down

 

I have a few dogs in my portfolio and ive paid school fees on them. Learnt my lesson the hard way. 

So newbies im giving you a chance not to pay school fees. Take the lesson or shove it, choice is yours.

 

 

 

 


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Trading is one of the only fields where genuine con artists/scammers will urge you to “be careful of con artists/scammers.”






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