Blog : My Million Dollar Penny Stock Mistake

by Peter Leeds on January 13th, 2015




My Million Dollar Penny Stock Mistake

I've made plenty of mistakes in penny stock trading.  Thankfully, I've been able to outweigh these with successes, but each error still hurts.

Many might think that my biggest mistake in penny stocks was when I lost all of my money in the first two weeks, at 14 years old.  However, it was NOT the biggest mistake.  In fact, it wasn't even close.  
 
timing in the marketsmoney on firemad boy
 
Getting washed out right away was actually one of the best things to ever happen.  It taught me to learn how to trade penny stocks the right way!  I figured that if I could lose $3,600 that quickly, I must also be able to make that much just as quickly.
 
First, check out this newest video I made for you:
 
 

Looking back now, I'm glad to say that I was able to make all that money back several hundreds of times over!  The secret was learning more from mistakes than from successes, and being forced to do things right or "get financially destroyed."  With anything, failure is the greatest teacher.  If that failure happens very early, even better!

This doesn't mean that I was done with mistakes, of course... there were a ton of little blunders to come, and still the biggest gaff in penny stocks I have ever made!  (And for some reason I just keep doing it)!

Over the years, there has been one mistake (which I make from time to time) that has cost me millions.  I mean millions literally, no exaggeration, no question about it. 

Sure, I get impatient, but that's not the big mistake.  Yes, I get greedy from time to time, but that is also not the huge penny stock error that has cost me millions.  And it's not "being impulsive," or "listening to the wrong sources," or "going with the crowd."

My biggest mistake in penny stocks has always been getting in too early.  Way too early.  

You don't want to book the first voyage of the Titanic.  You don't want to be the person who waits in line to buy the new iPhone or Harry Potter book, when you can get it easily three days later.

It always goes the same way for me - I find an incredible, undiscovered penny stock company that will change the world, and I see the tremendous value.  I recognize how this little penny stock is going to chew up market share, and their customers are just going to keep coming back again.  Their management team has a history of being successful, and the financial ratios are a thing of beauty.  So I invest.

The worst part is that I am very often right about the company... but then it takes way longer to play out than I anticipated.  Yes they drove revenues higher each quarter, yes they build customer loyalty in an industry with increasing barriers to entry, and yes they eliminated all their debts and liabilities.

But no, the shares didn't respond overnight.  Nor did they start moving with weeks.  Some of my biggest penny stock winners were actually ones which I held, or my subscribers held, for a couple years.  Take Yangaroo (YOO on Toronto Stock Exchange) for example, which I've been involved with through 3 different CEOs, a company name change, and way too many annual general meetings.

Disclosure:  Peter Leeds owns shares and options in Yangaroo.

While patience is one of the most important keys to success in penny stocks, there are also major downsides to being the first person to show up at a party:

Opportunity Costs:  what else could you have invested in with that money instead, if it weren't being used here?

Commitment:  Your dollars are committed, and now taken out of the rest of the game.

Risk:  You are taking on risk, every single day with every single dollar you have, for as long as the money is exposed.  If you hold a penny stock for 1 year, you've been vulnerable to company-specific risk for twice as long as if you had only held for 6 months.

And finally, the biggest hit to individuals who get in too early can be what I'll call the "Late-Comer Advantage."  

Just like a cell phone company ignoring their long-time and loyal customers, and giving massive deals and incentives to win over new customers, penny stocks sometimes reward those investors who come late to the game.  For example, if a company dilutes shareholders by issuing new stock into the open market, it has 2 effects:

1.  Current shareholders see the value of each stock they own getting weakened, or watered down.

2.  The Issuance of new shares often tanks the trading value of the stock.  This is especially true when it comes to penny stocks and small companies.  Fresh money can then invest in the shares of the stock for a lot less expense than you had to pay in the first place.

Turns out investing in penny stocks (or anything for that matter) is not about being right, nor is it a race.  It is all about timing.  Penny stocks make 90% of their price moves within only about 10% of their trading time.  This concept is called "Trading Windows," and I speak about it in both of my penny stock books, as well as here in my free e-book, "Pennies to Fortunes."

The moral of the story is that being clever, quick, and a long term supporter of many of America's next big companies does not pay.  What does pay is to identify great companies, and watch them from a distance, picking you moments to accumulate shares on dips, over time. 

For this reason, an "observer" personality type will always make a better investor than an "Eternal Youth," "Boss," or "Loyalist" type.  (No one should go through life without learning about the nine personality types of the Enneagram.  This has nothing to do with penny stocks, it's just a personal note from me to you).

Get Our Best Low-Priced Investments

  • don't have the time?
  • can't do all the work required?
  • want selections from the authority?

For only $199 per year, we give you our best high-quality, low-priced stock picks. Along with a full team, Peter Leeds is the widely recognized authority on small stocks. Start making money from penny stocks right away.