Blog : I Lost 100% in 8 Days with 16 Mistakes

by Peter Leeds on July 22nd, 2015

 
When people learn that I lost all my money in penny stocks, they are often surprised, shocked, or confused.  How did "The Authority on Penny Stocks" get wiped out trading them?  
 
Well I did.  
 
I lost 100% of my hard-earned money within less than 10 trading days.  
 
I was 14 years old, just getting started with investing, and my $3,600 became worthless.
 
Think of this situation from a different perspective.  I was only able to become the global authority on penny stocks because of my awful start. 
 
With anything, you learn more from your mistakes than your successes, and believe me - I had packed plenty of mistakes into my first few days.
 
Let's count the mistakes so that you can avoid doing the same thing!
 
I knew that putting my money into IBM, or Exxon, or any blue chip company wouldn't really make a difference (even if they went up 5% or 10%)!  So I thought, "which stocks really move in price?"  
 
I knew the answer - it was "the tiny ones!"  Volatile and speculative penny stocks could double or triple my money, and fast!
 
Mistake #1:  I painted all penny stocks with one brush - you don't call people twins just because they were born in the same city.
 
Mistake #2:  I looked at stocks as stocks, rather than as businesses.  A share of a stock is a piece of a business.
 
Mistake #3:  I was greedy AND naive.  The worst combination, especially considering that greed is bad enough on it's own.
 
I was too young to get a stock broker.  I had to go through my mother's trading account, so deposited the money with her.
 
Mistake #4:  I never questioned why you have to be a legal adult to trade stocks.  
 
Bonus Mistake:  I brought other people into my stupidity.
 
I flipped through the stock market listings in the newspaper - yes, the newspaper.  This was back before the Internet.  I know I look 12 years old, but I've been around longer than you think.  This was the year when Michael Jackson came out with "Bad," Three Men and a Baby was in theaters, and Talking Alf was the popular toy.
 
I picked a 14 cent penny stock, called Siberian Pacific Resources, and bought about 30,000 shares.
 
Mistake #5:  I did not paper trade before using real money.
 
Mistake #6:  I assumed because the shares were listed in the newspaper, and traded on the stock market, that it must be a legitimate company.
 
Mistake #7:  I bought all at once, rather than scaling in, or watching the company for any length of time.
 
Mistake #8:  It is embarrassing, but I knew NOTHING about the company, other than it was listed at 14 cents in the stock pages.
 
Mistake #9:  I did not research the company at all.
 
I did the math.  If shares increased 1 penny, I would be up $300!  I was so excited for the next day's newspaper to arrive!  I threw it on the table, flipped to the right section, and checked the price...
 
...14 cents.
 
Mistake #10:  I didn't know how much, if any, trading volume had taken place.  I also did not know where the prices had been in the past - had they fallen from $4, or were they up from 3 cents, or what?  I didn't even look into it.
 
I kept doing the math - 2 cents up would mean $600 profit, 10 cents would be $3,000!  If the shares dropped 4 cents, I'd be down $1,200.
 
After a few days, I opened up the newspaper to see my penny stock trading at 13 cents!  I was down!
 
Of course, I wasn't a COMPLETE idiot - I figured if Siberian fell to 12 cents, I'd cash out and take my $600 lesson.  If it fell one more penny, I was going to sell.
 
Mistake #11:  My assumption that the shares would trade in any reasonable way was flawed.  Even IBM theoretically could double in a day, or gold prices fall to $1 in a minute.  Unlikely, yes, but when you are dealing with penny stocks, the price moves can be sudden and extreme.  There is no "If it drops to such-and-such price, I'll sell."
 
Mistake #12:  I did not realize that the very act of selling (or buying) could move the share prices.  Dump 30,000 shares of a 12 cent penny stock, and it's going much lower AS and BECAUSE you are unloading.
 
We were on to the next week now, and the shares of Siberian Pacific Resources sat lifeless at 13 cents.  Then the next day as well.  It was the following day, however, which really taught me my lesson.
 
I opened the newspaper.  Instead of the price quote, the listing just said, "Halted."
 
"Halted?"  What does that mean?
 
After a great deal of turmoil / panic / commotion / confusion / anger / embarrassment, I spoke to the broker, the stock exchange, and even made the call I should have done months ago - to the company itself.
 
The broker explained that the shares would no longer be traded on the stock market.
 
I asked, "Can I sell my shares?"
 
He said, "If you can find somebody to buy them."
 
The stock exchange said that Siberian had voluntarily stopped trading.  They could not pay, or didn't want to pay, the listing fees to be on the exchange.
 
I asked the man at the stock exchange the same question, "Can I sell my shares?"
 
He also said, "If you can find somebody to buy them."
 
Mistake #13:  I didn't know or understand the rules of the game - the lingo, the possibilities, the various occurrences, the potential eventualities... none of them.  I never knew what halted meant, or that it could even happen.
 
Mistake #14:  I only did any due diligence through desperation, which I should have done months earlier.  (If I had, I never would have bought that company)!  Now, I was doing an investment autopsy.
 
So I called the Siberian Pacific Resources head office.  Turns out it was based in England.  I hadn't known that.
 
A lady answered the phone.  I would swear she was just in some basement of some house, based on the background noises.  I asked her what happened, what was going on, if I could sell my shares...?
 
Just like the broker and the man at the stock exchange, she actually did say, "If you can find somebody to buy them."
 
That was the moment I knew the money was gone.  For real.  Completely.
 
Mistake #15:  The money was lost the instant I bought the shares, not when I sold, and not when the stock got halted.  Profits are made when you buy, not when you sell.  Buying well is sooooo much more important than selling well.
 
Mistake #16:  I hadn't realized that penny stocks are a completely different type of investment than large cap or blue chip stocks.  Penny stocks have different price drivers, competitive risks, investor expectations, speculative business models...
 
For weeks, I felt the stab of losing much more than the money.  I lost confidence, pride, optimism...
 
It wasn't all bad.  I was faced with the choice of either walking away, or making that money back.  This time I would do it right!
 
I got my hands on every stock market book I could find.  I studied the great masters (Lynch, Buffett...) and lots of technical analysis books (the best ones were mainly from England, in my opinion).
 
I still had NO money, so I started paper trading.  I caught my mistakes without losing a single dollar, refined my strategy, read like a sponge, and took only the parts of each strategy which made sense.
 
It was years of this until my strategies started kicking a bit of butt, thank you very much.  I was first able to identify penny stocks to avoid.  Then I could find those which were about to spike in price.  Finally, as I improved, I was able to help others to do the same.
 
It was years later that I was able to say:
 
Losing all my money right away was one of the best things to happen for my investment skills.
 
You don't want to go into the casino and win the very first time.  You want to lose - then you can become a wise, patient, cautious gambler.
 
Hopefully, you will learn what I did not know at the beginning.  Perhaps my path through fire will shield you from the heat.
 

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.