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Jim Letourneau's Blog

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More on Thinly Traded Stocks

Resource stock speculators may find themselves occasionally jumping into thinly traded resource stocks on positive news. If the news is extremely positive, they may be able to catch a big move in a short period of time. More often than not they end up holding an illiquid security that will ding them 10-20% if they try to unload it with a market order.

Ideally a resource stock speculator will accumulate an undervalued stock during periods of market indifference and then sell into market strength and liquidity when the company's story gets noticed.

It is important that speculators don't use poor liquidity as an excuse to hold onto underperforming positions. Sometimes the story isn't as good as it first appeared. Try to have a reasonable time frame in mind for the story to unfold when you make your purchase (this can range from a few days to several years out). It will help you to decide whether to sell or hold down the road. In a commodities bull market you don't want to tie up capital in "dead money" situations.

Not Advice

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