TopDollar Investing

[vantillian]

10 Advanced OTC Axioms (a work in progress)

I’ve already completed 25 Axioms here: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=30835203

If you have not done so already I would encourage you to read them as they’ve been around long enough to have a proven track record of helping investors in the online world. Here are some unsolicited testimonials: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57729224

These new “advanced” axioms are another humble attempt to help folks that are crazy/daring/reckless/stupid enough to buy penny stocks. Why God made so many of us I’ll not know this side of heaven. wink

I still consider myself an OTC “student” as opposed to “master”. But I’ve got several years of OTC (think “penny stock” whenever you see “OTC”) experience under my belt, some scars, a few trophies, and I’ve diligently and consistently sought to approach OTC trading and investing philosophically where using fundamental, bedrock, axiomatic truth results in the best market decisions.

(I would exhort you to take a break if you think you’ve arrived.)

Remember, an “axiom” is a principle or truth that stands alone without the need for proof. They just are. Abraham Lincoln might use the phrase “self-evident” to describe axiomatic truth. So, I don’t seek to present a case with well-structured arguments to “prove” these axioms…they are designed to stand alone and to either be accepted or rejected. And, if accepted, to serve as the foundation of one’s thinking and decision making on the OTC. Build your structures upon the solid ground of correct and accurate truth! Consider these axioms as sunglasses with colored lenses that will filter/color/define everything you see across the OTC landscape. We all work from mostly the same pool of facts and data…how we interpret it all makes the crucial difference.

There will be some overlap between these axioms and the other axioms, but that’s okay.

So, here are 10 Advanced OTC Axioms:

1. The Pigs Can Fly Axiom. Anything can run! I have basically stopped “warning” people about scammy, scummy, crummy companies because there have been several times when my warnings inadvertently kept people from making dough as the stock went through the roof. Anything can fly! The nastiest wart-covered, fat, sloppy mess-of-a-hog can grow wings if some hedge fund or some promo or some inexplicable force gets behind it. This is part of the allure of the OTC, I guess. Sometimes things happen in pennyland that leave even the most seasoned veterans slack jawed. You will never master the OTC for this reason! The law of gravity sometimes vanishes for an indeterminate amount of time but it always returns with vigor at some point. Sometimes, the really scammy companies run like the wind because you’ve got a fearless, no-conscience CEO tossing out insane revenue projections and/or fictitious buyout offers and/or anything that keeps the shiny object attractive just a little bit longer. (Also, understand that many times those posters yelling the loudest against scammy companies are trading the stock too! Perhaps it makes them feel better about their profits. Who knows. Where there is volatility, there is money to be made.)

2. The Horse Apples Axiom. This axiom is closely related to the Pigs-Can-Fly Axiom. Realize that penny stocks are like dung. All of them. If you have chosen to buy a penny stock then you have chosen to purchase poo-poo. Now, sometimes crap can make people a lot of money (think fertilizer companies and/or Mad Max Beyond the Thunderdome), but when you position yourself to defend or support your favorite penny stock company what you have essentially chosen is to become an advocate for doo-doo. I know this is a troubling mental image but it is accurate. “Hey, it’s crap! Don’t buy it!” insists the do-good crusader. Yeah, we know. They *all* are. What matters is if it will MOVE. What matters is if there is POTENTIAL for gains/volatility there. What matters is what the masses BELIEVE. What are you going to do Captain-Save-The-Planet? Tell them how bad that poop smells compared to that not-so-bad smelling dung over yonder?

3. The Socrates Axiom. You can’t really be sure of anything. You will become a savvier trader when you embrace this. In the perception-driven world of the OTC, I would have to agree with Socrates that purported that: “the only true wisdom is in knowing you know nothing.” (Debating whether or not you can really know for sure that you know nothing is another matter. Just work with me on this.) You can’t be sure of the share structure. You can’t be sure of that large European holder that you just *know* is waiting to sell his eleven million shares until after the stock hits a dollar. You can’t be sure of the guy/gal that gave you the tip. You can’t be sure that the numbers in the press release are correct. You can’t be sure how much stock is going to hit the street next week. Understand that non-dilutive contracts often mean absolutely nothing to these penny CEOs. Should a marketplace like this actually exist? That’s a good question, too. But for now, it does, and there is money to be made on it for those that understand it by never understanding it.
4. The Share Swelling Axiom. Every stock gets diluted, period. If it’s not the company diluting, it’s ancient restricted shares coming off restriction. Or maybe it’s an escrow account that managed to stay hidden from the latest NOBO. Or maybe it’s an old cert some funder or accredited investor forgot about in his filing cabinet and he just found it. If it’s not one thing then it is another. There are many clever and creative means whereby the float on your cherished stock can GROW QUICKLY. Trusting that the stock’s float will remain stable is like having a tailgate party on a small lake that has quickly frozen over, inviting the entire town to come out, and trusting that the ice will hold up under the weight. Ain’t gonna happen. Sure, you’ll have a great time on the ice for awhile but something’s gonna give. When a stock is trading at a high price per share and there is liquidity at higher price ranges, the temptation is overwhelming for someone who has the power and ability to add shares to the float to do so. Oftentimes, stocks can and do go up when there is responsible dilution. And sometimes they even go up with irresponsible dilution (see Advanced Axiom #1). Penny stocks *all* dilute folks. Why would they be putting out press releases and hiring IR firms and shucking rumors if there wasn’t money to be made. And how do these companies make money? After all, they went public to raise money…and the way making money is done is through the *sale of more shares.* All of them dilute…even the ones that proclaim loudly that they are doing a share buyback. Think: how much of a buyback is it if they dilute twice as many as they buy? Maybe you’re a noobie to OTC investing and you’re thinking: “People would actually do that?” Yes, yes, YES they would do that (and they DO)! In fact, the louder the company and/or posters insist that the float is stable the more leery I become. Recently I got my butt handed to me because I neglected this axiom and boldly challenged a poster about the share structure of a stock I persisted remained unchanged. The very next day the transfer agent was called and we discovered that the scumbag CEO had diluted by about 5% of the outstanding. There’s always a reason why your favorite stock is getting buzzed about. Even if a stock’s run starts out as purely organic (which I believe can and does happen at times), understand there are forces out there that can add supply in amounts that will utterly cripple demand.

5. The Friends and Family Axiom. Sometimes the pre-promo *IS* the promo. Do you understand what I mean by “pre-promo?” Here’s an example of what I mean: “Hey bud, head’s up on XYZX. Hearing massive push coming next week with loads of overseas money coming into it.” If you’ve been online for any amount of time you’ve likely received a private or public message similar to this! Understand that sometimes the friends and family (i.e. “pre-promo” or “pre-push”) program IS the program. In other words, sometimes YOU are the promo without knowing that you are the promo. Your dollars. Your money. Your stupidity. You bought in on the hype and hope of a promo but you were the promo. The push that is coming is happening right now. Today! By YOU. When some friendly tipster tells you they know a push is coming on some ticker, it’s time to start asking A LOT of questions before you buy unless the rumor originates from a semi-trustworthy source. Which, when considered carefully, the idea of a semi-trustworthy source is a misnomer because he/she is likely trusting an altogether un-proven, un-trustworthy source for their information. Remember, the information you receive is likely two or three steps removed from the origin. And many times the people that are the origins of information would make the devil blush. Digest this. I’m trying to help you here. This is not a friendly world.

6. The Profit Axiom. If you’re not selling, you’re not making money. This axiom is not original with me but it is so good and true! Evaluate your trading activity over the last 2-3 months. How many bags are you holding because you were holding out for more profit? If you are holding bags that could’ve been sold for a profit, shame on you. Seriously, that’s just not good investing. The future is now. What are you waiting for? If the stock went up 300% over a period of years what would you do at the end of that time? Take profits. So why is it different for you to take profits a few days (or perhaps even hours) after you purchase a stock? Think in percentages. All pigs eventually get slaughtered. Good rule of thumb is to take some profit at 50% and some at 100% and then ride freebies. Be a disciplined person in an undisciplined world. You will win.

7. The Matrix Axiom. Discipline your mind to think *reality* though you invest in a realm almost exclusively dominated by *perception.* Why? Because “perception” can only take you so far. It’s Wonderland! But it sure seems real for a time! It’s like the guy that married a beauty queen. His perception of her was that she was staggeringly gorgeous! But the morning after his wedding night he woke up to reality in his bed. She didn’t wake up a beauty queen! It took a lot of work! Think of the OTC as “The Matrix.” Remember when Neo would get plugged in to the Matrix and visit a world that was total perception? You need to discipline yourself to view OTC life through that mindset. It’s. Not. Real. But it feels so real to so many that perception does impact aspects of reality. What is real? Money. Numbers. People. The OTC is a world of perception that greatly impacts the real world of money and numbers. Understand which is which. Don’t confuse the two. Don’t lose yourself. Swallow the blue pill. Remember, perception eventually comes crashing down and reality wins every time.

8. The Ebb and Flow Axiom. Think of each stock, each trend, each fad as having a window of time. Once the hub is seriously buzzing with the latest trend (such as “Q” stocks or “D” stocks) it’s time to start looking for the next “hot” thing. The essence of life is motion and change. Without motion and change there is no excitement, no buzz. Novelty rules the world. Most of these things tend to cycle.

9. The Hero to Zero Axiom. Nobody stays hot forever (or for very long). If you think that you have found that guy who never makes a mistake, that guru, that golden goose…you have deceived yourself. If your “big gun” is currently blazing hot…ride the wave but don’t be left holding the bag. The most undisciplined investors stay dumb on purpose. Most investors are lazy. They are some of the laziest people I’ve ever met. They want to turn $1,000 into $10,000 by doing nothing but waiting a bit. And they want to find the next Jim Cramer to tell them where to put their initial $1,000. That’s lazy. But it’s not going to change. Some of the truths of these axioms rub me the wrong way as I type it, but I can’t change reality. The more that I can embrace these truths, remember them, and act by them…the better investor I will be.

10. The Teamwork Shmeamwork Axiom. Teamwork on the OTC only works when there are positive vibes and the stock is uptrending. Why? Because those smart enough to realize the value of networking with other investors are also smart enough to realize those very same investors cannot be trusted. Private Ryan never gets searched for in the OTC war. Anyone that is pitching ideas of “nobody gets left behind” or “I will be the last one out” or “none of us are selling until $X amount” should not be trusted for long. I know this is harsh and will step on some toes. You, like me, have probably bought stock based on claims like this. But sometimes the truth hurts. I do not trade and invest to make buddies and friends. I trade and invest to make money. And as such, looking out for my own portfolio is the most significant factor when buying and selling securities. What is your most significant factor? Some of you may recoil a bit at this axiom and look for friendlier words from more cheery places. That’s okay, but please know this: The OTC is a battleground. People are fighting for money. Some people *kill* for money…so, deceiving you through kindness, notions of teamwork, or guilt-for-selling is STANDARD OPERATING PROCEDURE for more “leaders” here than you ever dared dream. Bottom line: Don’t get your need-to-belong and relational itch scratched here. Instead, find a good Bible teaching local church.

10 More Advanced Axioms are being developed and should be posted sometime when I feel like it and/or I get enough pressure to do so.