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To
OTC Journal Members:
Excerpt From The Psychology of the Successful
Microcap Investor
Dr. Richard Geist, Ph.D. in Psychology,
Harvard University
Because there is a much higher
failure rate among micro-cap companies, successful micro cap investors
have developed the capacity to tolerate loss. They have come to terms with
the fact that many of their stock picks will crash, but they also know
and are comfortable with the idea that all it takes is a few really large
winners to come out significantly ahead of their peers. Belief in this
principle helps these investors tolerate mistakes without undue self-criticism
or threats to their self-confidence. While most unsuccessful investors
become pre-occupied with their mistakes, blaming brokers, analysts, company
management or themselves, successful investors expect to make mistakes
as part of the investing process. They reverse themselves quickly, attempt
to understand where they went wrong, and tend not to repeat the same mistake
again. Most of these investors seem to enjoy the process of investing more
than they enjoy making money.
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We've had lots of winners recently,
so a little rain on our parade was inevitable.
Today's edition is one of the most
important I will publish. It is about three stocks I have been covering
which have become problematic. The OTC Journal covers microcap stocks,
defined for our purposes as companies with less than $100 million market
valuations. Several have market values less than $10 million. These stocks
are very risky, and good microcap investors understand there are going
to be losers.
Sometimes the best strategy for dealing
with a negative situation is to cut it out of your portfolio as if it was
cancer. Painful in the short term, but clearly the best for the long term
health of the patient. Sometimes short term problems become outstanding
buying opportunities. For example, the last time Amazon (NASDAQ: AMZN)
traded at about $25, Barron's published an article stating the company
was worth no more than $15, and projected negative cash flow would continue
for years to come. The company just reported outstanding earnings and is
currently trading at $52. Hardly a microcap, but you get the point.
All three stocks covered in today's
edition are trading poorly. Read the circumstances and make your own decision.
In each case, with varying degrees of risk, you might be reading about
an extraordinary buying opportunity. You make the choice. It's your money.
Learning to deal with the negatives in microcap investing is a very important
component for long term success.
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VirTra Systems
(OTC BB: VTSI) |
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I chose to lead off with VirTra
Systems, because I believe this situation presents the most exciting
opportunity of the three.
I expect the stock to trade poorly
for the next several weeks due to an excess supply of stock having nothing
to do with the fundamental progress of the company.
Mr. John Aleckner was one of the
original founders of the company. He left the company some time ago and
resigned from the board. Aleckner had been awarded over 2 million shares
as compensation for a substantial loan to the company. Aleckner is now
divorced, and his wife received half the shares in the divorce settlement.
VirTra Systems recently attempted
to block the sale of these two million plus shares in a Texas court in
an attempt to protect its shareholders. VirTra lost the motion.
During the proceedings the former Mrs. Aleckner stated her intention to
immediately sell her shares as soon as they were registered to trade freely.
Based on the way the stock is drifting down, I believe Mr. Aleckner has
already begun selling his shares. This event was disclosed in a 8-K filing
with the SEC.
As a result of this temporary excess
supply of stock, I expect shares of VirTra Systems to trade down
in the near term.
VirTra delivered outstanding
results with it's new Judgemental-Use-Of-Force training simulators
in the second half of 2003. I believe this company will take their business
to the next level in the first half of 2004. I can't say how low the stock
might trade, but in this particular case the short term glitch should be
viewed as an exciting opportunity for those who have not established a
position or would like to add to their holdings.
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ActionView
(OTC BB: AVWI) |
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For those of you who follow ActionView,
you know the company came out with news after the market closed on Tuesday.
They announced the company had entered into a letter of intent to form
a joint venture. The joint venture company would immediately begin placing
ActionView's
unique point of purchase signs in Hong Kong and China.
The stock had been trading in a nice
uptrend since making a low in December, and I believed the news of expansion
into China would send the stock higher. The stock opened yesterday morning
a few cents higher, then got hammered on extremely high volume.
Technically, this was an extremely
negative day. It suggests there is a substantial excess supply of stock
looking for a new home. Yesterday's action might have cleaned out all the
sellers, or there may be more. I cannot say for sure. This was a perfect
example of the old Wall Street adage "buy on mystery, sell on history".
Most of the time a sell off of this
nature is followed by a bounce once the supply is exhausted. I would expect
the same to happen here. The stock will probably rebound a bit, and trade
a little higher into next week. If you own this one, wait and see how it
behaves.
ActionView is a concept company
with a fairly rich valuation as compared to the fundamentals. The right
arrangement with a major chain store could send this one straight up, but
until the company delivers it would have to fall into the very high risk
category.
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Amnis
Systems (OTC BB: AMNM) - No Amnesty for Amnis Shareholders |
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I was optimistic about Amnis System
as we turned the corner into 2004, and yesterday's news out of the company
changes everything. On January 15th Amnis announced it had engaged
an investment banking firm to acquire up to an additional $5 million in
financing in order to complete the development of its next generation technology.
I expected the company to raise additional capital, restructure its existing
debt, and move forward in January.
Yesterday Amnis announced
a complete 180 and totally reversed its position. The company announced
it was ejecting the video streaming business, would completely restructure,
and was seeking a potential acquisition candidate. According to the press
release, Amnis felt it had fallen behind the curve on the next generation
technology, and would not be able to make up the market share loss.
As I write today's edition, shares
of Amnis have swooned below the $.01 level as shareholders respond
to this surprising turn of events.
There is a silver lining. The company
did not state an intention to file bankruptcy. It stated its intention
to attempt to acquire another company and move forward.
Clearly this one falls into the category
of a loser. However, next week could be a different story. If you haven't
sold already it hardly seems worth it. You can always take the tax loss
at the end of the year, and it could turn around.
If you have a Las Vegas gambler's
mentality, you might gamble and hope you roll a 7.
Charts Provided Courtesy
Of TradePortal.com |
