Experimenting with penny stocks

NASDAQ:JOEZ

A couple months ago I (specifically, when money from my 403(b) rolled over) I decided to invest in a penny stock. I wanted to see if it is actually possible to "make a quick buck" on penny stocks. So I bought 100 stocks of JOEZ. Joe's jeans is a high end jeans brand that is mainly sold in department stores, but also has its own stores. Within the high end jean collection, they are a popular purchase.

I read up on them, discovering the website seeking alpha in the process. They had just undergone a merger with Hudson Jeans, which seemed to me like a positive step (Hudson jeans are also very popular in the high-end jeans market). Well long story short, I haven't gained a penny yet.  My losses aren't huge either, but it is still disappointing!

After making this investment and seeing it do miserably I decided to do some more research on penny stocks (sometimes I like to do things backwards). 

After checking a couple websites, I have 3 main lessons learned:

1. Penny stocks are extra risky

2. Penny stocks often have a different status

3. Penny stocks can be deceiving

1. Penny stocks are risky

Wikihow has a great 12 step process for investing in penny stocks and the first step is about knowing the risks.  Penny stocks are risky because of a couple different reasons. First, there is generally a lack of information about the stock. Many penny stocks are not traded on the stock exchange meaning they don't have to file with the SEC and thus, do not need to follow the guidelines and restrictions of trading on the stock exchange. Lastly, penny stocks can be harder to sell; they are less liquid because there is the chance you won't find a buyer at your asking price for them.

2. Penny stocks often have a different status
As I mentioned before, some penny stocks are not traded on the stock exchange. They are most likely OCT (over the counter) stocks. These stocks do not adhere to the same regulations as regularly traded stocks.  Also, look at the history or the stock and signs of instability.  According to wikihow, "Look for delisting or signs of decay in more established penny stocks."

3.  Penny stocks can be deceiving
Since OTC stocks are not government regulated, you have to be your own regulator.  When researching a penny stock, be critical. Don't believe everything the press says. Go to the financials if they're available and do your own research.  Wikihow explains that one way fraudsters try to make money is by investing heavily in a stock and hyping it up, convincing novice investors the stock is a winner.  This deceit is one of many reasons you need to be careful.

For more information, especially regarding penny stock investing strategy, I recommend checking out the wikihow article. Another good resource is Investopedia's Lowdown on Penny Stocks.

Double your Tax Refund by Preparing

I mentioned earlier that I would write a post focusing on tax tips for self employed people. Actually, some of these tips could apply to everyone.

Awesome ROI

Let me start off with telling you why it’s so important to be prepared to do your taxes when you’re self-employed.  A study by the Foundation Communities in Austin Texas & CFED saw that there was a quite clear positive correlation between self—employed taxpayers who were prepared and the amount of their refund.  As you can see by the chart next to me, the extremely prepared received up to $1158 more in tax refunds than those not prepared.  Check out the Center for Economic Development’s blog post on it.

So let's get you prepared to get that big refund!

Really the main take-away from the study is to come to your tax appointment having done you due diligence.  Knowing what to track and what to prepare will ensure that big check.

First thing you can do is track your mileage.  Even though the miles you use to commute are not deducted, the miles you use to go from one work to the next do! Depending on how your business is set up that could be a lot of miles and having an accurate count will benefit you.  I know I would have a hard time estimating how many miles to deduct for a whole year on the spot...

Keep track of ALL business expenses.  Even though you won't be able to deduct everything, it will be better to have all the info available than (again) try to remember how much you spent on replacing that office chair last year....Imagine you forgot about buying it, and you don't deduct it! How horrible!

Tricky deductions

Most deductions are pretty straight forward. Cleaning supplies, mileage, machinery, etc. As the IRS says, business expenses need "to be deductible, a business expense must be both ordinary and necessary (D. Stoica's Blog).  Some are a little less straightforward.  For example, deductions for use of your home as an office are only applicable if you have a dedicated space in your home that is labeled the office, and that is NOT used for personal use.  If you meet these conditions, go fot it!  Travel and meals are also great to deduct...if they meet the requirements.  Travel expenses such as hotel, flight, car, and even dry cleaning is 100% tax deductible, but meals are only 50% tax deductible - while traveling.  Meal expenses while at home have a different set of rules. You can only deduct meals (while not traveling) when:

a. "Entertainment took place in a clear business setting, or 

b. Main purpose of entertainment was the active conduct of business, and you did engage in business with the person during the entertainment period, and you had more than a general expectation of getting income or some other specific business benefit." (IRS)

For a list of common deductions check this blog by Bankrate.com.

a little update on last year's retirement obsession

Almost a year ago now, I wrote a couple blog posts on retirement, because for some reason I was a little obsessed with it. Well I'm not that excited about it anymore.

Your retirement is FRAGILE! 

I did a lot of research and invested about $1750...now I have $1535, which is not that bad since we had a major downturn in the stock market about two months ago. But, still! I'm down $200...when I wanted to be making money. This really makes me question the whole system. I can't believe people rely on the this type of income to fund their retirement.  It seems absolutely crazy and risky.  Yet, it's the norm.

When I saw my account decrease I was sad, but I wasn't worried.  My retirement is many, many years away. This account is a good start, but if I loose most of my money I can always start from scratch again.  But, what about those individuals who are in their 50s. They only have a couple more years until they will need that money to live off of.  I cannot imagine what they are feeling watching the stock market crash the way it did this summer.

There's got to be a better way to save for retirement!

Social Security barely covers living expenses and it's complicated.  I tried calculating how much money I would get on their wesbite (http://www.ssa.gov/retire2/) and didn't get very far.

I say we bring pensions back for everybody! Why should government bureaucrats & public service people be the only ones who get them?

Giving Financial Advice - how do you make people listen?

So right now I'm all about encouraging people to save. At work I have this new advocacy project through my Equal Voices Fellowship in which I will be focusing on the goal of increasing the amount of money Marin county residents save.

Erupting Mind

Now as a side note, at our office we are always preaching about the importance of savings! There is this phenomenon called the cascade effect. It pretty much suggests that when you don't have a little bit of savings in the bank (and are living paycheck to paycheck) your life can easily take a downfall.  Say you have an unexpected car mechanic bill to pay. You don't have the savings for it, so you take it out on credit. Then you realize you can't pay your credit card. Then all of a sudden you can't cover basic expenses...and before you know it you're being evicted. - Cascade Effect - starts all because you couldn't cover that initial expense!

I wish I could say this argument was convincing enough to make people open savings accounts...but the 1st reaction you get is ... yea saving money is hard.... I need it!

So anyways, back to my project. My first action item is to start a Summer Savings Challenge. I have hashed out the details with my boss and made a flyer. Now all I have to do is advertise it!

What is the Summer Savings Challenge you may ask? Well it is a raffle designed to encourage people to save.  You get one raffle ticket/entry every time you make a deposit of a minimum of $5 (limit: one entry per day).

This goes on throughout the summer until August 31st. On September 6th we will hold the raffle! You can win up to $100!! There are actually 3 prizes to win: $25, $50, and $100.

What we are trying to do here is build people's "savings muscle" (so nicely worded by my colleague Ramona).  It is not the amount you save, but the commitment to save! Even if you can only commit to $1 now; you're still building your savings! It's just like when you start building real muscle. You may start with 1 pound, but after time your arm will get stronger and stronger and you may be able to increase the weight you lift.

women's handle on money ...

So I've signed up to this new newsletter called the Daily Worth and it is quite interesting/awesome!

Women coming together to take control of their finances and become smarter financial planners and investors = awesome!

Check out their website:

Their most recent newsletter was quite "eye raising". Planning for divorce. Talk about things you don't want to talk about! But their tips were really interesting and if I were married I would look into this. Even better, check credit scores BEFORE you get married!!! Get it all on the table before hand!
and when it comes to divorce, make sure you know all the finances beforehand - don't get screwed!

closer to retirement choices

so I finally finished that book on retirement. but now what? I still need to make the choice and dive into the stock market. and I still can't predict it. so from all the information I've gathered I think I will allocate a big chunk to bonds, some ETFs, some cash and then of course some stocks. After all the crazy economic unrest in the past years and the fact that I don't need my retirement money RIGHT NOW I don't think I want to put that much in the stock market, whether it's through mutual funds, options, or stocks. I know bonds are safe and low in return, but it's still money! and it's what I feel comfortable doing right now.

I am however, more interested in learning about trading on the stock market. So we'll see where that takes me! I learned all about gap trading, the january effect, and window dressing, which I am eager to try out.
According to Rule your Freakin Retirement, gap trading is when you analyze the how a stock changes over night (or when the stock market is closed). Since you can still buy stocks when the market is closed, when the market opens the next day the stock price is usually at a different point than when it closed the day before.  However, the volume of trades affects the price and at night fewer people buy and sell stocks, thus the price can change dramatically, while during the day the sheer volume of stocks bought and sold will stabilize the stock price. What does all this mean? Well from what I learned it means that most likely sometime in the morning the stock will jump back to close to its price the day before, and that's where you can make money.  I'm not 100% sure I have completely understood it, but it helps trying to explain it to someone else!

Window dressing, according to my memory, has to do with how fund managers try to make their funds look more appealing, even when they have been doing badly.  Before each quarter these managers will sell off stocks that haven't been doing well and buy stocks that have. This will make it look like the fund has 100% winning stocks.  This will make the price of those stocks that were sold off go down somewhat dramatically. After the quarter, most of the time fund managers will buy those stocks again, realizing that it's a good stock and that it's really cheap (now).  So what you can do, is look out for stocks that randomly decrease in value a week or two before the end of the quarter, buy it, and then sell it a couple days after the quarter's end.  I feel like I'm missing something here, but I can't remember what and I had to return the book to the library. =( I'll have to do some more research.
Well anyways, the January effect is similar, because it has to do with fund managers buying cheap stocks driving up the price dramatically.

That's that for now...I'm excited to start trying these techniques...and the whole retirement saving! are you?

Retirement: Mutual Funds, Bonds, and other ways to risk your money.

oh yea - I'm tackeling it. I will attempt to sort through my latest reading, though I can't promise a complete picture as of now! It seems like the more I learn the more unsure I am about what I should invest in for my retirement...which is definitely not what I intended.

A short recap of what I've learned:

Mutual Funds
By buying one, I am agreeing to let someone else decide which specific stocks to invest in AND paying that person to do it.  Now, there are pros and cons to this.
Pros: you can blame someone else when your portfolio decreases in value, you can rely on someone else to make pretty important decisions
Cons: smart, intellectual stock martket gurus can't truely predict the market either.

I will definitely put money into mutual funds because I feel like my knowledge about different markets and companies is not up to par...and I have paranoia/stress issues....it's best if someone else worries about the market. Though I'm sure this thinking is not fool proof!

As long as I pick a mutual fund with no loads, and VERY low commission ... and in a perfect world I will also check out the bio of the person in charge of the MF. Generally, if they have been the manager for over 4 years, they're 30+ and successful, I'm happy! But hey, I'm still learning!

There are lots more things to look at regarding mutual funds, and so I will revisit when I'm done with my first book =)

Bonds
I will also add these to my retirement fund. Why? because yes, diversification is key, but ALSO because they are a lot more safe than stocks! and having mentioned earlier that I can get quite paranoid, I think I like this option..depending on what I choose. Also keeping in mind, that when saving for the long term, anything gaining under 4% interest may not be as beneficial as you think, since the average inflation rate is at around 3% or so I've been told. So bottom line, you probably can't rely completely on bonds. =(

So yea, I've pretty much summerized my opinions here. No actual data to help make better decisions - will need to work on that!! I will start including actual research soon. But now that some of my thoughts are on paper, it will be easier to move forward!!

and we'll address the whole other ways to risk your money...