The penny market can be a real challenge. I’m sure that many of you that trade pinksheet stocks have visited stock forums for more information and ‘hot stock’ tips. The problem is that by listening to the posters, you may develop some misconceptions. I’ve got a short list of misguided beliefs to share with you, so that you can help minimize risk and maximize profit in pinky-land. If you come across anyone stating any of these points about a certain stock, your best bet is to get out…or if your due diligence shows that the stock still has promise, do not continue to listen to those that state the following.
Pinksheet Myths:
Naked Short Sellers are causing the drop in price and they will have to cover soon.
Crooked Market Maker’s are manipulating the stock; pushing it down. They will let the price rise soon, though, so they can make even more money.
Anybody calling somone a paid basher everytime a negative comment is made.
Anybody treating Press Release fluff as fact.
These 4 simple misconceptions lead to the majority of penny stock losses. They get investors to hold longer and suffer much larger losses. The problem is that if everybody knew how crooked the penny market was and traded accordingly, nobody would make any money.
Please remember that the pinksheets market is not Technical-Analysis-driven, it is hype-driven where promoters drive home a misguided message in order to attract the unsuspecting into believing the company is something it simply is not.
This is a revolving door. With the wrong information, people can hop and skip in with a fistful of cash only to leave shortly thereafter scratching their head and empty pockets. And as they go out somebody else comes in. You see, it can be an unfair game from the start.
So, do be careful and do your research ahead of time.
Here are a few of my favorite rules that successful investors abide by. I hope you enjoy them, and apply what you learn.
1. Sell Your Winner Stocks: Sounds counterintuitive, doesn’t it? That may be, but you must sell your winners. To be really effective, you have to take profits. That way, you get more capital that you can put to work. You should cycle the “inventory” in your portfolio, because stocks that sit on the shelf for too long will go bad…much like produce that’s past its expiration date.
2. Always Sit in an Exit Row: This rule goes hand in hand with rule 1. One of the most common problems investors have is not knowing when to sell. Sometimes, they’ll let a big loss get out of control or, worse, they’ll notch a big gain and then sit on the investment so long that it sneakily turns into a loss. The bottom line is that, up or down, you should always have planned exit points when you initiate a position. Adjust those ’stop’ levels as prices move in your favor, but never when they go against you.
3. Think Like a Plumber: Big losses, like six inches of water in your living room, are expensive and can set you back years. Professional traders focus the majority of their efforts on avoiding losses, instead of oncapturing gains. It’s counter-intuitive, but it really makes a difference. Besides, if you keep those portfolio pipes from bursting, you won’t have to worry about your assets leaking away, drip by drip.
To supplement last week’s guidance about energy stocks, I want to single out Uranium stocks in today’s post. With news about dwindling oil supplies and climate change, governments are still heavily considering nuclear energy.
First, let’s digest this statistic: Globally, nuclear plants consume 65,000 tons of uranium every year. Meanwhile, the mining industry only supplies 40,000 tons of new uranium each year. The remainder is supplied by recovered fuels and civilian and military stockpiles.
Second, let’s take into account that these supplies are expected to be depleted by 2013.
Now, considering I’ve mentioned that stock trading is a game of supply and demand, where do you think the price of uranium stocks may go over the next 3 – 5 years? With supply levels falling and demand remaining constant (or even increasing), the price will certainly move upward! Big consumers like Japan and the United States could face shortages. On a side note, investing in oil companies may also yield the same results, as there is always talk of oil supply levels depleting in the not-too-distant future.
Granted, uranium is a longer-term play (3-5+ years), but it certainly wouldn’t hurt to earmark a small portion of your portfolio for uranium investments.
Carbon Credits? Cap and Trade? Is all the political talk of these systems driving you crazy? Me too, but that doesn’t mean you can’t try and profit off of all this ‘eco-friendly’ news.
Due to all the talk about energy, emissions, and the environment (three ‘going green’ E-words), today’s suggestion is that you look into alternative energy stocks and ETFs (you can browse a few green and alternative energy ETFs here). These stocks are getting a lot of attention because of the current push toward cleaner sources of fuel and away from high-emission fossil fuels. Such ‘dirty’ fossil fuels (oil, coal, etc.) can be hazardous to our health and the environment. Meanwhile, greener forms of energy are not only cleaner and better for us, but most are limitless in supply.
So take a look at wind, solar, nuclear, and even algae-based energy. I believe stocks in these areas will see nice returns over the next couple of years.
I’ve been paying attention to some guidance, recently, and have come up with a couple of recommendations. Of course, the final decision is up to you and your Financial Advisor (if you have one).
1. Growth Stocks, especially in the Tech Sector are overpriced. All of the latest ‘good economic news’ is already built into the current price, so further increases in share price may be hard to find. This isn’t to say that you should sell all of your tech stocks, but lightening your load of them may prove beneficial. The Consumer Electronics Show is this weekend, so individual tech stocks might get a bump if any worthwhile technology or gadgetry is introduced. Afterall, it has been shown year-after-year that tech stocks tend to decline in price from Spring through the Summer…only to rise again in the Fall through the holiday season.
2. Consider stocks in the Healthcare Sector, specifically the more established, stable companies. If you’re not sure which stocks to buy, consider an Exchange Traded Fund (ETF) of healthcare stocks. You can find a list of healthcare ETFs here.
Again, make sure that you do your own research when determining what to buy and sell. Let me know what you think of my recommendations, and how you’re doing with your portfolios. I’d love to hear what you have to say.
Act before year-end. For 2009, you can give up to $13,000 each to as many individuals as you wish this year and pay no gift tax. Spouses can “split” gifts for a total of $26,000 per beneficiary, per year. Gifts beyond that are taxable, but only to the extent they exceed $1 million over a donor’s life. The lucky recipient of the gift owes no gift or income tax, and doesn’t even have to report the gift unless it comes from outside the United States.
Pay someone’s education or medical bills. You can also make unlimited payments directly to medical providers or educational institutions on behalf of others without incurring a taxable gift or dipping into your $1 million lifetime gift tax exemption.
Shift income to tax-advantaged children. Consider gifting appreciated securities and stocks whose dividends are taxed at low long-term capital gains rates to children, at least to the extent that the “kiddie tax” will not apply. Up to a limit, even younger kids will pay tax at their own rate—likely 0% (through 2010, expiring in 2011 under current law). Kids over the age of 18 (or 24 if a full-time student relying on you for more than half of their support) aren’t subject to the kiddie tax at all.1
Give appreciated securities to charities by year-end. Consider donating appreciated securities that you’ve held for more than a year for a full fair-market-value deduction and no capital gains tax. If you give to a donor-advised fund (such as Schwab Charitable Fund™) by December 31, you get the tax break this year and can take your time deciding how best to distribute your gift.
Consider donating appreciated securities
Let’s say you’d like to donate $10,000 this year. If you have appreciated stock (or bonds or mutual funds) that you’ve held for many years, consider donating that instead of cash.
Why? If you sell your appreciated stock first and then give the cash, you’ll pay the 15% capital gains tax on the gain (state taxes may also apply). But if you donate the stock to a charity, there’s no capital gains tax. The charity gets the full $10,000, and you get to claim a $10,000 tax deduction. In this example, if the long-term gain would have been $5,000, you would save $750 versus selling first and then donating cash.
On the other hand, if you’re holding securities at a loss, sell them first and then donate the cash. That way, you can claim the capital loss on your tax return.
Donate from your IRA. If you’re at least 70½ years of age, you can donate up to $100,000 from your IRA directly to charity income-tax-free for 2009. That’s likely better than taking a taxable distribution and deduction.
After you decide what to do this year, resolve to make financial planning a year-round exercise going forward (you’ve probably got better things to do around the holidays). That way, it’ll be easier to check your progress, update your plan and, if necessary, take action long before the ball falls in Times Square on New Year’s Eve.
1. The so-called kiddie tax applies to children under 19. In addition, full-time college students under the age of 24 will also be taxed at their parents’ rate on unearned income in excess of $1,900 unless the students’ earned income is greater than one-half of their support.
Coverdell Education Savings Accounts. If you’re eligible, you can contribute up to $2,000 to a Coverdell account on behalf of a child. Contributions grow tax-free and qualified K-12 and higher-education-related withdrawals are tax-free. You have until next April 15, but if you make the contribution by December 31, it will count as a gift for this year instead of next year.
State-sponsored 529 plans. Anyone, regardless of income, can contribute up to $65,000 ($130,000 for a married couple) this year, without incurring gift taxes, if you make an election to have the gift treated as though it were made over five years. You don’t have to invest in your own state’s plan. But if your state offers an income tax deduction on in-state 529 plan contributions, then that’s another reason to make your contribution by December 31. Still, it’s a good idea to compare state plans—especially if you live in a state with no deduction, such as California.
