Identifying The Wrong Penny Stocks I
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Okay, here we go! I was recently listening to a video of Tim Ferriss talking about how to learn things better and faster by looking at the learning process in a different way. In his discussion, he noted that chess champ Bobby Fischer learned how to truly master the game by starting from then end–playing a King and a pawn against another King. In the same way, Tim himself learned how to excel at tango by not learning the male’s moves, but by learning the female’s moves instead.

So, I’m going to take a completely new way of looking at penny stocks: I’m going to learn how to LOSE money first!

I think that if you can learn how to lose money first–and learn all those mistakes that people make when getting into penny stocks–that that information will be the MOST firmly imprinted in your mind. Think about it: if you’re like 99% of the population, you’re at least intrigued by “get rich quick” schemes, of which I’ve heard penny stocks are a great example. But, at the same token, there must be money to be made at penny stocks or else nobody would trade them, right?

That’s my working hypothesis, which dovetails with my other hypothesis, that people that lose money at penny stocks are beginners who focus too much on the “get rich quick” part and are drawn in by the lure of big bucks fast.

So, back to the beginning: if we learn how to lose money and what NOT to do, and that’s more heavily imprinted in our brains by learning those facts first, the chance of losing money is going to be much, much lower.

Next, having to learn what NOT to do, we need to learn WHAT TO DO. In order to accomplish that, I’m going to subscribe to Tim’s idea of breaking the task–choosing what penny stocks to buy–into “minimum learnable units” (MLU’s), that is, the chunks of the task that are easily definable and can be separated into different units. I hope to be able to pick out maybe 5 o 6 MLU’s in the analysis, but no more than 10. Then, I’m going to use Pareto’s Principle (20% of the effort gives 80% of the results, so focus on that key 20%), to figure out which of that handful of MLU’s is key to giving the 80% of the results and learn that first.

My thinking? If we can learn what NOT to do when picking what penny stocks to buy and then learn what few elements are the absolute key to getting an 80% result and learn that element or elements very, very well, we’ll be able to make some money!

Think I’m on to something? Or just think I’m crazy? Respond below and let me know what you think.

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