If you purchased 25000 shares and it....?

Question

Lets say hypothetically, you purchased 25000 shares in company XYZ. You purchased it for 0.25 a share. Say it climbed to 2.50 in two months. Than it dropped to 1.95 in two weeks. You stay strong, and it climbs to 4.50 in 3 months than it drops to 4.25 in one month. What would you do? What would be your deciding factors in selling, or buying more? What would you look at? Volume? Moving average? EPS, P/E, sector performance? This is a what if queshtion, so no smart *** answers please. Once I choose the best answer, I will give my answer, and an answer from a professional. Let see how you compare.

Answer 1

Firstly, before I buy a stock, I'd check its beta, which is a measure of its volatility. The stock you describe sounds wildly volatile. Since higher volatility means I'm taking on more risk, I'd expect this stock to yield me higher than the return on the market. (The NYSE and the market in general have averaged between 9-11% growth per annum since 1929).

So with a stock that wild, I'd want a return of at least 15-20% so I wouldn't sell until the stock had returned at least that. This may require a buy-and-hold strategy. I may also consider selling if the company is going under, which should be obvious by negative EPS numbers and continuous declining earnings.

I'm in a similar situation. I have stock options that mature soon, the price has been very volatile and I've been in and out of the money continuously for two weeks.

But for the investment portfolio, I look at the P/E ratio more than any of the others, but more importantly, I look at the company's annual reports to see if
1. Their assets are growing
2. Their net working capital (Current assets - current liabilities) to see if they can pay their bills
3. Consistent earnings growth--or at least stable earnings
4. Sector performance
5. RD expenditures as a percentage of operating revenue (Revenue - COGS)

I also look at the cash flow statement to see that they've got cash coming in at a rate that's consistent with cash going out.

Answer 2

First of all, I wouldn't buy a stock for 0.25 per share, but we'll suspend belief for now and address your question.

Ok, to get started, I'd look at the chart to see what the short, med, and long term trends are. I can tell from what you've said that we're at least in an intermediate uptrend over the past few months. But seem to be going somewhat sideways recently.

Next, I'd draw in my trendlines including support and resistance and see where we were. Throw in some moving averages and look at the volume as well.

Then, I'd compare the chart to the sector to see how this stock is performing relative to the sector as approx 25% of the stock's price direction follows the direction of the sector.

The drops are normal and expected in any market, so that doesn't impact my decision too much unless we break our trendlines. I suspect this is just a normal "bull flag", but I'd like to see what the other activity looks lke this month and the past few.

We might be in a sideways trend with support at 4.25. If that were the case, I might take some money off the table and set a stop a little below 4.25.

Reason for this is, if this stock isn't moving, I know many that are. And although I can profit from a sideways stock, I prefer a stock to move either up or down.

If I were tied to the stock, then if it's optionable, I'd consider selling a covered call on it as it bounced off of resistance.

If the stock looks like it's just resting as it gains energy for another move, I'd stay in and as mentioned earlier, move up my stop to just below support.

Cheers!

Answer 3

a) First I would put a sell in a 15% below current price as it rose.
b) W/o knowing the sector, it is impossible to know a reasonable EPS or P/E for a given stock.
c) The rise to 4.50 would put it on the NYSE or NASDEQ which would create stronger review options cf. VectorVest etc.
d) .25 suggests a spec. stock that got hot. Is it a legitimate rocket or has speculation driven it up that high? FDIC approval? Buyout offer, or simply a more expensive speculation.
e) I wouldn't buy more w/o a great deal more knowledge of what has driven it over past 6 1/2 months. And with the 15% sell set, I'm just fine. Its not about numbers at this point, its about information of where/what/ and who.

Answer 4

I think the following old rule my dad taught me is still good: when it doubles, sell half. everything then is profit. Ride it as long as you are emotionally able to. Also, I applaud you for considering "penny" stocks. I believe up to 10 percent of your portfolio should be in penny stocks unless you have less than five years to retirement. But penny stocks require frequent trading. Here is some more opinion: People say "don't trade often" but here is the math: If you buy mutual funds you might easily pay 2% per year hidden fees on your fund. Even no load funds have these expenses. And if you have a loaded fund you could easily pay 5% your first year. Now if you have a $100,000 account, that is $2,000 to $5,000 per year you will pay to hold mutual funds. If you trade on Ameritrade you get trades for under $10 each. So you could trade 200 to 500 times per year yourself and not pay more than if you let the mutual funds do it for you. Lets say you trade at the low end: 250 times yearly. That is over 20 trades monthly!!!!! At that ratio you can easily turn over your $100,000 several times yearly and not pay more in fees than if you let the mutuals do it. So dont listen to the naysayers: trade often and check out the penny stocks for up to 10% of your portfolio (not more imho) I just made $40,000 in one week on king.pk and the company website is kingresources.net

All of this is just my solo opinion and you should always seek professional advice when trading.

Answer 5

OK depends on the company like Meryl Lynch.MY agent SELLs my shares when they peek. AND we REbuy when they go down EXample. I bought STOCK in ex company.IN 1987 before the market crashed I saw my shares dive a little. I sold then. Good thing i did, our neighbors did not fair so well. I bought some shares when the companys were really down.LETS just say i am well off today, from that move.

Answer 6

first of all do u haw much % growth are u talking in 3 months? its about 2000% thats 8000% annualised return. any clever investor will sell his 90% holding in such stocks and will invest in some others attractive stock who also perform as good as this one.