Hello everyone, it’s been a while since my last post. Sorry about that, haha was busy trying to learn coding. Haha I have to say that the activation energy to learn something completely new is super high! Going back to today’s post, I will be talking more about the first few trades that I did after my “Noble” failure. (Haha you can read more about it here) If you think that my next few trades should be much better, you may be wrong. I decided to try to trade in a few different stocks to understand how it works. Some work against me, while some earned me a pretty good return. So here goes…
The picture above was taken from my Stock Portfolio page from last year . Haha just look at the sea of red! Each closed trade in red are definitely scars I will bound to remember in years to come for experimenting in different types of stocks . Of course, I did draw some meaningful lessons from it, allowing me to update my list of things to NOT DO when choosing certain stocks. I will be sharing with you those lessons today.
1) Never look for stocks that are too “penny”!
Penny stocks are those that probably only cost a few cents sometimes not even 1 cent on the SGX. Different stock exchanges around the world have different meaning for penny stocks. For instance in the US, penny stocks are normally less than $1-2. Penny stocks are even more dubious if their fundamentals are not good. No strong record of earnings , questionable management etc. Also, penny stocks tend to be played by professional traders. They may buy up a lot of shares, since it is cheap and thus create a sign that the stock is trending up. Retail investors may get into the stock and when the pros sell the stocks, these retail investors tend to get trapped with a higher price paid for the penny stock. Hence, the risk for penny stocks are definitely high!
As for me, the 2 stocks that I bought into which were penny status were Cedar Strategic (530.SI) and GCCP Resources (41T). One cost me $0.004 and $0.06 per share respectively. Cedar Strategic had a troubled management in the past, and the new management came in ,divest away its loss making businesses and went into property development in China. The sales of the property seems to be going well and to be honest I was a little greedy, here’s why. If I bought $400 into Cedar, an increase of 0.001 will earn me a $100 profit. Of course that didn’t turn out well haha, the stock was so illiquid that the price of the stock can be the same for a few weeks. After a while I thought it was a bad investment on my part and decided to sell it away for 0.003. See what happened here? By selling away at 0.003, I incurred a $100 loss + a commission expenses of $43!
This taught me that:
- Penny stocks are usually businesses that may not have sound fundamentals.
- Penny stocks are usually illiquid and most of the time we have to sell lower due to low demand for the stock.
- Just as penny stocks have huge potential to double your money, it can also lose your money in double quick time.
2) For beginners, don’t buy into mining companies.
Mining companies are normally bad investment for beginners as they usually carry huge debt and have little or no profits. This is due to the nature of business. Mining companies borrow huge capital to buy equipment for mining. Furthermore, there are a lot of uncertainties in the mining industries.
- There ore mined may be low quality and of no commercial value.
- The mining company may not be profitable before their debts are due.
- The profitability of mining companies are heavily dependent on the prices of the commodity they mine.
All these mean that the volatility in the mining industry is very high. For me I bought into CNMC Goldmine (5TP), Alliance Mineral (40F) and GCCP (41T). All are pure mining stocks while GCCP is also a penny stock as mentioned earlier. But I would like to talk more about CNMC.
CNMC Goldmine mines for gold in Malaysia. The good thing about this company is that they have become operational and are actually mining gold from the ground. The company also benefitted from higher gold price. So I bought into this company at 0.425, it eventually rose to a high 0.50 cents mainly due to better production and increase in gold price. However, key events like the rates hike in the US eventually cause it to drop to a low of 0.40. Also, recently CNMC announce that the quality of gold ores they mined are of lower quality hence it affected their earnings too. I didn’t sell when it hit its high but sold only when the bad things start to hit the company and eventually I sold for a loss. Hence it was a painful lesson for me about the mining industry.
From this we can see the difficult industry the mining companies are operating in. Thus, in my opinion, for beginners it is best to avoid this industry altogether unless the company present a very promising growth catalyst in the near future.
These are the 2 lessons that I draw from the next few trades that I did after Noble. Although, it is not a rosy picture, I definitely learn a lot from it. Hope you guys get some insights from my humble sharing.