A quick guideline for the beginner.
Speculative Stocks - A Short Guide on How to Handle Them.
This post is being brought on for one reason and one reason alone. I am mentoring a younger trader who I met at the Cigar shop in Phoenix where most of my time is spent during non-market hours.
It’s almost like a right of passage and over the years mentoring younger traders is something that I feel like is a requirement to give back. Plus, the education space is filled with dipshits that either lie or just regurgitate what they believe to be true from someone else — so I like to dispel a lot of it.
What are Speculative Stocks?
Penny stocks, bio tech etc. - Really anything that does what $LGVN did in recent days: 100% move in a day.
Now that’s crazy right? A stock moves 100% in a day. New investors see this and get sucked into chasing these unicorn stocks and it becomes the strategy they start with.
I did it too.
In 2005 I was trading Denedron ($DNDN - dead now) a biotech stock that I knew f*ck all about but I was 19 with little money and the $3K or whatever I had seemed viable because it would have these tremendous runs.
So, I’ve been there.
But what I know now about how to treat speculative plays is entirely different and it starts with the first rule.
Speculative stocks are pumps. They’re usually pushed on what stock promoters deem ‘stock awareness’ campaigns. Now, not all speculative stocks are like this, but most are. Pumps never last but they suck people in who have champagne taste but beer budgets and it’s a cycle on repeat.
If any guru you follow (and the ones on Twitter that trade this shit - and there are a lot) that do is front-running you. What that means is they know to some extent ahead of time what these stocks are doing and when they gain a mass following because they are “teaching you for free” - they then sell into you after mentioning it and after it already ramps leaving you with the flaming bag of shit.
When you look at the guru types that do this they have massive conviction in it always. They take massive share positions and don’t seem worried. Why? Because they know the cycle and when they tweet it out or share and discuss it they know their followers are going to buy it.
I don’t have an interest in naming names because I’d rather spend my time running my fund and making money than to get into it being a detective but just keep that in mind as you explore this space.
Treat speculation stocks like non-expiring call options. When you buy a call option say for $15.00 the max you can lose is $1,500 but….you have expiration as well.
Speculative stocks don’t have expiration unless they go to $0 eventually but if they do take off you can put a trade on where you use a small amount of money that is fixed, like a call. You leave the position alone and let it sit. You don’t sit there and pretend you know hot to read level 2 or make up stories of why the company is so great.
The company is shit and it’s speculation. When you accept that you free yourself from emotions tied to it because you know take a speculative position with money you don’t care that you lose. That might be $500 or $50,000, I don’t know.
Don’t believe a SINGLE thing any guru or stock forum has to say on them. One, the guru types that trade this I promise you don’t even know what the current interest rate is let alone how the rest of capital markets work.
So them telling you “analysis” of the company is the same sales pitch that every bro trader who watched Wolf of Wall Street gives. (also red flag if your guru quotes Wolf of Wall Street - it’s an easy way to say im an idiot).
Same goes for trading forums and I’ll give you a real story. In 2014 the fund I was with had a lending arm - they lent shares to some shady company via convertible debt - they defaulted and note structure dictated that they owed us shares since repaying the cash was not an option.
Those shares were not ones we wanted - they were illiquid and garbage. But, I remember word somehow got out that we got them and the stock forums began with lines like “Hedge fund takes a position in X company, that’s bullish” or “They received a new investor” -
The opposite was true. Each day I would set limit orders to sell as much as we could because we wanted our cash back.
So you have to be careful, especially in the speculation space because most of it is just false.
It’s another reason I hard on using data and catalysts in investing v. an opinion of why.
In fact, I took a speculative position in $EVGO for about $2,000 months ago that I mentioned in TheLongVol.com report.
The Bottom Line
The bottom line is that this idea of catching a stock that moves 20% or whatever in a day is a farce that the day traders on YT and Twitter sell. Only a few of them ever get it right and it boils down to info they have prior or luck.
But this style of trading, if you can even call it that, draws in the crowd who want the fast gain rather than grinding it out. It’s the same reason so many day trading stock schools bloom. Then again, it's like telling a drug addict they have a problem; they're not interested in hearing it because to them, they're having a good time.
I hope this helps.
This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investments. Any such solicitation of an offer to purchase interest will be made by a definitive private placement memorandum or other offering documents.
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