The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: CanDo(r) on April 05, 2014, 10:41:00 AM
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Back story: There's a sad, sick part of me that likes to play the lottery. However, that part got face-punched by logic after I read actual stats about the lottery (and thankfully the co-worker in my office who used to run the lottery pool bowed out after too many non-payers). As a compromise, I thought I'd blow $100 or so on a penny stock in an industry I'm supportive of in case it were to take off. Didn't realize the buyer's fee was $10 instead of $7 on my online trading platform (built-in facepunch).
One of these stocks has gone up 50% in the past week.....so my $170 (incl fee) purchase price is now $230. Do I sell now for a $50 profit (less $20 total fees) or hold it forever in case this particular company in this fledgling industry takes off? What percentage do you sell at? 50%? I didn't expect to see this money back, but I thought as long as I'm "gambling" maybe someone in a sustainable-earth-type industry could benefit.
(And no, this is not my long-term investment model. I do not plan to buy any other penny stocks this year, especially with the higher fee probably making any gains a wash.)
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I think of penny-stocks as "moon-shots." From your post you clearly didn't/don't plan on it being an investment strategy, so why not let it ride? The most common scenario is that you wont' see much (if any) of your $100 back, but there's a very slight chance the company could take off and/or get gobbled up.
If you still believe in the industry/business and this isn't an investment I would just play it out.
EDIT: Just make yourself a promise to yourself that you won't ever spend more than 0.5% of your income on these moon-shots, ok?
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The "right" answer is of course to sell it and move on with your life. There's no "rule" that's going to lead to more profits (e.g. sell when you're up 100%). Any strategy that's costing you nearly 20% in roundtrip commissions isn't really worth considering from an investment standpoint (especially a short term one).
However, by your own admission, you're doing this mostly for entertainment value, so you're the only one who can answer whether it's worth selling or doubling down. None of us can advise you as to whether the fun of "letting it ride" is of more value than a boring but sensible investment strategy.
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Just sell it and stop gambling. If you didn't already have it, you wouldn't buy $230 of it today, so holding it is inconsistent. If you find it entertaining, sell and keep watching the stock price anyway; you won't lose any entertainment, you'll just be reversing the direction that would entertain you.
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sell enough to cover your initial investment (including fees) and let the rest ride. If it really does go up like crazy you can still get a big payday.
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Any stock could go up like crazy. Why gamble on this one? Ask yourself: if you owned none of this stock today, how much would you buy? That is the amount of it you should hold. The correct amount of this stock for you to hold is not determined by how much you bought in for (that's the sunk cost fallacy).
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Any stock could go up like crazy. Why gamble on this one? Ask yourself: if you owned none of this stock today, how much would you buy? That is the amount of it you should hold. The correct amount of this stock for you to hold is not determined by how much you bought in for (that's the sunk cost fallacy).
I think this is very sound advice for investing. I don't think OP is looking at this as an investment. I think this is more of a gamble/speculation/entertainment situation. If it was for investment purposes then they probably shouldn't have bought it in the first place.
I think throwing a little money at a penny stock is a perfectly fine form of entertainment/gambling as long as you don't try to fool yourself into believing it is an investment.
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Any stock could go up like crazy. Why gamble on this one? Ask yourself: if you owned none of this stock today, how much would you buy? That is the amount of it you should hold. The correct amount of this stock for you to hold is not determined by how much you bought in for (that's the sunk cost fallacy).
I think this is very sound advice for investing. I don't think OP is looking at this as an investment. I think this is more of a gamble/speculation/entertainment situation. If it was for investment purposes then they probably shouldn't have bought it in the first place.
I think throwing a little money at a penny stock is a perfectly fine form of entertainment/gambling as long as you don't try to fool yourself into believing it is an investment.
Considering the OP literally said that in his post, I'm not sure what warfreak2 is talking about. If someone has a hundred bucks that they want to gamble away, there are much worse things to do than put that money into a penny stock that at least has a possibility of going up in value.
I also like the idea of selling enough to replace the money you put in, then holding onto the rest and letting it ride.
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Considering the OP literally said that in his post, I'm not sure what warfreak2 is talking about. If someone has a hundred bucks that they want to gamble away, there are much worse things to do than put that money into a penny stock that at least has a possibility of going up in value.
Uh, yeah. He's gambling. I literally said this:
Just sell it and stop gambling.
I even suggested a way to get exactly the same entertainment value without actually gambling any money.
Gambling is an antimustachian waste of money. I am telling OP not to do it. That is my advice. Sure there are worse things, that doesn't make it OK. If someone came here and said "I just won $230 from $170 of lottery tickets, I'm thinking of buying $230 more lottery tickets", we'd facepunch them, right? We wouldn't say "just buy another $100 of lottery tickets, there are worse things you could do" or "if you enjoy it that much, go for it". We would say, "there are definitely other things you could spend $230 on that will make you happier". Why is this different?
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I think people are free to do what they want with their money. If they are not in debt and are meeting their savings goals and decide that they can truly afford to gamble, then who cares? If it brings you $100 of enjoyment then why not do it? There are many forms of entertainment, and just about all of them can be argued to be "an antimustachian waste of time."
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I think people are free to do what they want with their money.
Uh, yeah, they are, no dispute there. But when they come to the MMM forums asking for advice, I assume they want Mustachian advice - so that is what I gave. My mustachian advice is that by changing his mindset, he can get the same entertainment out of it without actually gambling: after selling all his stocks, he can be entertained if the stock does badly, instead of if it does well.
If it brings you $100 of enjoyment then why not do it?
Economics. In a competitive market, the price of goods and services is not determined by their value to the consumer, but their (marginal) cost of production. When you say "if you get $100 of enjoyment out of it, fine", you're talking about the value it has to him - but that is not what determines the price he should pay. With an appropriate mindset, the cost of enjoying watching a stock rise or fall is $0, and a frugal person shouldn't pay $100 for entertainment that he can get for $0.
If somebody was paying $100 for on-demand movies through their cable TV, would we say "well, if you get $100 worth of enjoyment from it, fine"? No, we'd tell them they can get the same enjoyment a lot cheaper from other movie services.
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Thanks for all the different perspectives. I ended up selling today and netting about $70 which will go back into my normal portfolio. Decided I can either profit sure thing now or maybe never.
Onward & upward.