Small Stocks for Big Profits: Generate Spectacular Returns by Investing in Up-and-Coming Companies (Wiley Trading)

227 Pages·2008·2.84 MB·English

by  George Angell

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Small Stocks
for Big Profits
Generate Spectacular
Returns by Investing in
Up-and-Coming Companies
GEORGE ANGELL
JohnWiley&Sons,Inc.
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Small Stocks
for Big Profits
Generate Spectacular
Returns by Investing in
Up-and-Coming Companies
GEORGE ANGELL
JohnWiley&Sons,Inc.
i
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Copyright(cid:1)C 2008byGeorgeAngell.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
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LibraryofCongressCataloging-in-PublicationData
Angell,George.
Smallstocksforbigprofits:generatespectacularreturnsbyinvestinginup-and-coming
companies/GeorgeAngell.
p.cm.
Includesindex.
ISBN978-0-470-29665-3(cloth)
1.Smallcapitalizationstocks. 2.Stocks. 3.Smallbusiness–Finance. I.Title.
HG4971.A542008
332.63(cid:2)22–dc22
2008014651
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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Contents
Preface vii
CHAPTER 1 Making Money in Small-Caps 1
Small-Caps:TheNextBullMarket 1
SeparatingtheWheatfromtheChaff 3
HiddenValue:TheSmallStock’sSecretWeapon 5
TheValueInvestor 7
Timing 8
SmallStocks,BigProfits 10
PayingPennies,SellingforDollars 12
EveryStockHasItsStory 15
CHAPTER 2 Getting Started in Technical Analysis 17
TheConventionalWisdom 19
WhatIsTechnicalAnalysis? 20
WheretoBegin? 21
SupportandResistance 23
ChartsandTrendlines 23
Breakouts 25
ManagingtheBreakoutTrade 27
ContinuationandReversalPatterns 28
TheMostReliableChartPatterns 30
TheRealValueofTechnicalAnalysis 32
TimeandPrice 34
Momentum 36
AWordaboutShortSellersandHowTheyImpacta
Stock’sPrice 37
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CHAPTER 3 Profitable Strategies 39
IdentifySupport 39
TheRuleofThree 42
TheMomentumPlay 44
ContraryOpinion 46
IdentifytheCorrectPhaseoftheTrend 50
APersonalObservation 50
FindingGoldAmidtheDross 54
TheBottomReversal 57
AggressiveBuying 60
WhentoCutandRun 62
StocksThatTrendWell... 66
...AndThoseThatDon’t 67
TheReboundTheory 68
TimingtheRebound 73
WhenIsaStockReadytoBuy? 80
HowtoIdentifytheLow-RiskBuy 87
CHAPTER 4 Timing 103
Seasonality 104
HowtoUsetheBullishConsensuswith
SeasonalPatterns 109
HowtoConstructanOscillator 110
MomentumAnalysis 114
TradingFilters 115
Stops 119
MovingAverages 121
MarketTiming:ProandCon 122
CHAPTER 5 IPOs 125
TheBasics 127
ThePublicOfferingProcess 128
HowtoReadaProspectus 129
TheCooling-OffPeriodandRoadShow 130
WhatHappensNext 132
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Contents v
CHAPTER 6 Insider Buying 135
WhoIsanInsider? 135
HowtoTrackThem 136
SmallStocksHavetheEdge 138
CHAPTER 7 The Selection Process 141
AssetPlaysandConceptStocks 141
Guidelines 143
NutsandBolts 145
MoneyManagement 147
RevenuesandEarnings 148
CashFlow 149
Price-to-Sales 150
BalanceSheetBasics 151
UnderstandingReturnonInvestment(ROI) 154
Debt 155
CHAPTER 8 Options 157
TheBasics 158
TheTermsofanOption 158
GettingStartedinOptionsTrading 160
HowtoUseOptionVolumetoPinpointMoves 162
TheRules 164
CHAPTER 9 Your Roadmap for Success Tomorrow 167
BuyWhenStocksAreLow-PricedandDepressed 168
IdentifyFirstLegandCountermove 173
TheWorst-PerformingIssues 178
AlwaysBuyatSupport 179
PriceCapitulation 182
DevelopingaWinningMind-Set 188
AnInvestor’sChecklist 191
TheLookAhead 196
About the Author 199
Index 201
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Preface
A
bout10yearsago,Ihadtheluckiestdayofmyinvestmentcareer.I
receivedaphonecallfromafellowinLasVegaswhomadealiving
investing in small-cap stocks. We discussed the markets for a bit,
trading background information. Did I ever come out to Las Vegas? the
caller inquired. Sure. I enjoyed an annual trip to the gambling capital. I
liked to bet on sports and theoccasional craps game. Indeed, I had atrip
toLasVegasalreadyplannedforthefollowingmonth.HesuggestedIlook
himup.Wecouldhavelunch.Imadeamentalnoteofourconversationand
wentbacktowhateverIwasdoing.
Five weeks later, I took a cab over to his Las Vegas office just before
noon.Wehadlunch.And,asourdiscussionaboutthemarketscontinued,
we later had dinner. The entire day had been taken up with talk of his—
andnowmy—foremostinvestmentpassion,thebuyingandsellingofsmall
stocks. This was an eye-opening event for me. In the years that followed,
we invested in approximately a half-dozen stocks. Each of them proved
to be a winner. And I mean a big winner. One, a small Vancouver-based
miningcompanyknownasFirstQuantumMinerals(FM.TO),latersoared
fromjust80centsashare(whereweboughtit)toover$100ashare!The
other stocks—mostly mining, gaming, biotech, and oil issues—returned
more modest gains, but never failed to at least quadruple or quintuple in
value. He was a firm believer in loading the boat. Constantly buying up
9percentofthesharesoftheselittle-knowncompanies(inordertostayun-
derthe10-percentreportinglimitsforinsiders),heusuallyownedalarger
piece of the company than the key officers and board of directors com-
bined.Needlesstosay,heearnedmillions.Imadeless,ofcourse,because
myinvestmentcommitmentwasonamoremodestscale.Butjustrecently,
oneofhislittlegemsroseawhopping42percentinonedayondiscovery
ofgoldonitsOntarioproperty.ItisgettingsothatI’mnotevensurprised
bythesespectacularwinnersanymore.ButIknowonething:Icouldnever
findanyonetopaymethiskindofmoneythatI’mmakinginsmallstocks.
What is his secret? There isn’t any secret. It is simply hard work. Be-
ing a confirmed dyed-in-the-wool value player, he seeks hidden value in
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