Five Ways to Win When Playing Heavily Promoted Penny Stocks

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Five Ways to Win When Playing Heavily Promoted Penny Stocks

2013-us-centLet me start with the correct warning that goes with understanding the very nature of heavily promoted penny stocks.  That warning is that need to make sure that you always avoid the mistakes and misunderstanding that come from penny stocks. In my post “Five Things Investors Do Wrong When Playing Penny Stock Picks” is a great start at understanding the risks and the land mines.

This post is about how to succeed. Let me throw in this snippet regarding and the companies we typically cover. While we are paid for awareness programs, we do not lead or participate in heavily promoted penny stocks. What I mean by that is we do not ever participate in campaigns that become more about the campaign and less about the true strengths of the company.  We have a strong belief that some of these campaigns becomes more of a manipulation of the market and therefore could lead to RICO (Racketeer Influenced and Corrupt Organizations Act) charges against the organizers.

What my more than ten years in this smallcap awareness business has afforded me is a second or third row seat in watching these campaigns come into being, get executed, grow to incredible heights, only to come crashing down to near nothingness all the while seeing it with crystal clear clairvoyant vision.  Over the years I have chronicled a few of these from my lofty perch, however, I have found that the very act of chronicling these made me way too many enemies with massive financial resources that have even put hired strangers at my door with warnings in my face on two occasions.

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 Way to Win Extra Tip: War Games

Depending on your age you may or may not recall the film from the 1983 called “War Games.”   It starred Matthew Broderick, Ally Sheedy and Dabney Coleman. There is the famous scene where the “computer” that controls all of America’s nukes suddenly realizes that thermo nuclear war is pointless. There is no strategy in which civilization wins.

I realize that this is a lame tip and I will not be counting it as number five.  I throw this in so you do understand that you very well might lose at playing a heavily promoted penny stock.

Let’s get into these five ways to win when playing heavily promoted stocks:


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Way to Win Number Five:  Understand the Promoter’s Calendar

There is a season for all things promotional.  Think of it as the typical American School Year.  I will define this to everyone inside and outside of the country. Also note that nothing ever really passes a major American holiday. Some issues do not pass major Canadian holidays like the Canadian Thanksgiving.

backtoschoolWhat this means is that the money people behind most of these deals take the entire summer off and travel with their family.  Some travel and visit others in the business and plan for the busy season, but most simply take time to not really work at all. They do not put their money to work in the Summer at all.

Around the beginning of August they start talking to everyone in the business. The truly big promoters have been acquiring shares of companies they plan to work through the year. They spend hundreds of thousands of dollars getting these shares. Several years earlier most of them use to create companies in reverse mergers. Some made entire operations out of finding empty public shells and putting near nothing companies in those public OTCBB or PINK SHEET shells and proclaiming the next great thing.

A famous group in my own Dallas / Fort Worth area was called the “Shell Creation Group” by the SEC.  I remember the day when I met with one of the key people behind that group along with a couple of my partners. Their key guy flew in from Tulsa on his private jet, took a massive limo to some restaurant in Plano, Texas just to meet with three of us. He was sizing us up to see if we would play his game. We failed his test when he realized that we were all over 35, married with children and we would all prefer not to get involved in something that just smacked of BS.  That guy is in jail for decades now, and we all learned very quickly that you can be sucked into a huge fall by making a wrong decision. We made the right decision and we all learned all at once how money saves no one when they are involved in a massive conspiracy. Many of those guys went down, and down hard they went.   Decades.

Read about that here:
and here
and here
… You get the idea.

The replacement for these kinds of frauds is heavy investment in existing companies. Sadly some of these companies do not even realize that these people coming in and generously buying up their convertible debt and creating various funding opportunities for their companies are really setting them up for a massive fall. They are setting them up in ways they have no realization of.

I could relate two stories in detail, but I won’t.  I will skim a couple of details. I remember last year meeting with a woman who ran a company after it had been run into the ground following the promotion. She was so smart. She and her husband read books on how to take their private company to the next level and she invited these “Wall Street Guys” to come to her city and visit the company. They came with the limos, the large staff, the thousand dollar suits and put on a great show.  She did not realize what they had done to her stock until they started unloading it by the millions of shares and dollars, leaving her and her company with a subpenny stock and nearly no money to do anything. She wanted my advice. I had no advice for her. Her company was real. Her trust killed that real company.

The other one was a bit more funny as an observer. I was being called into do a video on our video site about a particular company. The initial meeting went well. Their stock I had noted had just jumped from barely trading to trading in the millions of shares and dollars. As I mentioned this to him while I was visiting he realized that I was not just some video guy coming in to do a video. He shared how startled he was.  I was shown the “technology” which shocked me as being nearly nothing of value. I was worried about even doing a video on this. He could read me on that.  After attempting to set up the day to come in and shoot video several times I was asked to just drop it. Clearly they had bigger worries. I was so glad myself to be not doing that video.

Let’s get back to that schedule.

The promo calendar starts about September 10th and runs through about the second week of June in the following year.  Yes, that lasts past the end of the school season, but that is only because it is sometimes hard to close out a deal and get rid of all of the shares.

Deals never, ever run through a major US or Canadian holiday.   There is generally a break for the Canadian Thankgiving, then the American Thanksgiving, then the ten days up until Christmas. They love to launch campaigns the day after Christmas (sorry Boxing Day Fans – they do violate that Canadian holiday). They love to build interest in the final week of the year and then make that same deal even bigger in January.

In the new year they typically run all of the way through the American Holiday of Memorial Day in late May, however, they slow down fast in June.

Smaller programs happen all of the time and do not necessarily follow such a schedule.

Let’s move on to tip four for playing heavily promoted stocks.

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Tip Four: You simply must learn to only ride a deal up. Dead cats do not bounce.

down-kitty-downAnother way to say this is all good and bad penny stock promo deals must and will come to an end.  When it’s over only those that believe the news and prior pumping releases continue to play. Yes, there are ways to make a few bucks on a deal that is over, but that is by accident. That is when someone gets excited and thinks that this stock that was up 1800 percent, which is now down 50% from that, is likely going to jump back up again. So they get a home equity loan and move a huge chunk of change into buying it back up. You might get lucky in a quickie transaction. Days later that money is absorbed. That buyer decides he has to pull his money back out and he loses 75% of his “investment.”  (Did he tell his wife first?)

The only way to win in any of these is to understand that you only make money as it goes up. That means you need to recognize the strong groups, play those strong groups for a very limited amount of time, get your money out, and wait until the next deal.

How do you know when a deal is over?

That’s the funny part. When ever you see them mention “New Pick Tuesday” it has been over for a while now. You have to really look at the charts. When they start to let the price collapse you have to know they no longer feel the need to come in with hard dollars to make it move back upward.

Let’s move on to tip three for playing heavily promoted penny stocks.

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Tip Three: Read and Understand the Press Releases from The Public Company; then Compare that to the Hyperbolae coming from the Promoters.

(In my last article I detailed how to know if a press release comes from a public company or from a third party promoter. Link here: )

hyperboleWhen you read the Public Company’s press releases see if they are radically different from what it has put out in the past. Do they come out with more frequency?  Do they talk about “LOI’s” and “MOU’s” and other letters that do not really mean deal? Do they talk about buying the rights or options to do things on property that is adjacent to the most valuable property already producing millions in some precious metal – although they never worded anything like this in the past?

When you are getting the carefully written releases one after the other the program is still on.  When they suddenly dry up, it’s over.

The hyperbolae with the promoter will continue for days and even weeks after the official press releases end.

Tip two is a biggie to look out for… and it is next.

Tip Two: Learn what a Penny Stock Research Report really is and How it Should Be Used for YOU to Profit.

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Let me start by saying that I have tried to develop a “real penny stock research site” that takes the fundamentals and certain technical indicators into account to pick real companies on the US Pinks and BB and the Venture exchange and picks winners. We have that site under development, but have not yet came up with a way to monetize it.  This is not a pitch for that site, but let me explain what all of the other research sites on the smallcaps really are. There is at least one exception to that and that exception is Zacks Research. They are independent and not funded by the issuers and they do a great job.   I trust them, although that does not mean they are always right.

writing-a-research-reportThe typical research report in a huge high volume campaign comes out very early. It is nothing more than a profile of the company written by a firm that has a name that sounds good enough. A decade ago most of these were written by individuals with “CFA’s” (Chartered Financial Analysts) that were a member of their international organization. They received compensation, but knew they would only get hired on a regular basis if they wrote glowing reports on junky companies. The CFA community began to throw out members who did this regularly, so you see very few of those anymore. Others with the ever impressive “MBA” or even “CPA” have often taken over such reports as there is no international organization to cover a Masters of Business or a Certified Public Accountant.   Others do not even have a human name on the report.

These reports are used to justify a price that is up to fifty times higher than the current trading price. They may set an outrageous target like that, but getting just part of the way to that target is enough for most promoters. These $5000 to $10000 reports can yield hundreds of thousands in upward momentum buying.   They get quoted by the promoter over and over (and over and over and over) ad nauseum until the report is spent. Until it is totally over.

Buy on a new report only. Sell days later or marry that stock certificate.

Tip One is Next

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moolahThe top tip is as it should be. Take the Profit and Get Out. Don’t play and play and play.

It is so easy to win in the first few days of a huge promo. It is the last 80% of the promo that is going to kill all of those gains. Don’t do the foolish thing of thinking that you “got this stock figured out.” You don’t.

Take the profit.


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The Bonus Tip:  Read the Ihub (“I hug”) and Yahoo Message Boards on the stocks. You learn so much. You get others that tell you when they see signs of weakness.

ihugMake Phone Calls to the Company. I love this one. When the company starts going to 100% voice mail and no returned calls, that’s a bad sign.

Good luck and have fun. Don’t mortgage your house or dip into your kids’ college fund!


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