You would think that most traders would be extremely cynical of the companies they trade: cautious, at the very least. It’s so easy to get burned in the world of penny stocks that cynicism and harsh critique become somewhat of a self defense mechanism. This just isn’t the case with some traders. Time and time again I see people putting way too much faith in the CEO’s of penny stock companies. STOP! That is a terrible strategy that will only harm you in the long run.
Chances are, if you are reading this, you are a diligent investor/trader and this post does not apply to you. That being said, it is still something you may want to look out for, as there is another aspect to it that you can benefit from. I’ll discuss this towards the end of the article.
First things first, there’s no problem trusting a company you invest in. In fact, if you are truly “investing” in a company, you better believe in their CEO and management team. Trusting in someone such as the late Steve Jobs makes sense. The man has a proven track record and a vision that has made Apple the highest valued publicly traded company in the world. He has already proven himself and you can form an opinion accordingly. Of course, you should never be blindly led by faith, however, you do not need to be so cynical that you don’t trust anyone; that is not the point of this post.
That being said, “investing” in penny stocks is extremely dangerous, but that’s a whole different argument. You should be wary about every move the CEO does or does not make. I don’t care how many times the CEO was on TV, featured on a prominent website, or how many other companies they have run. The stock charts and company fundamentals speak for themselves.
Far too many times I see a stock tanking and people say things like “Who cares if the stock is down 50% today? “Insert CEO’s name here” has a plan. Just watch.” or “Buy the cheap shares while you can. “Insert CEO’s name here” is going to burn the shorts soon.” People are literally idolizing CEO’s they haven’t even met. I don’t want to mention any specific company names because it’s not my intention to call people out in this post, but this happens all of the time. People put their faith in the CEO and hold a stock as it tanks exponentially. I was guilty of this when I started trading penny stocks but I learned fast. Getting burned by bad companies will brand some important lessons in your head.
Think about it. Why would you ever leave your investment in the hands of someone else? If a stock is turning against you, get out. Do you think the CEO really cares if you lose your money? Do you think the CEO started a public company so they could help other people get rich? Don’t be naive. The CEO is doing what everyone else is: trying to make money for himself. The difference is that a lot of these CEO’s get paid a salary either way. Of course some of them are large shareholders, which is a plus because they profit on positive performance, however, there is still no reason to idolize them. You don’t even know the CEO. They might be a great business man or simply a great manipulator/self-promoter. Always be cautious.
Analyze the company and substantial facts. If the CEO is doing a good job, that’s great! It’s his job to run a profitable company. If the CEO is doing poorly, recognize that and reconsider your investment/trade. There is a reason so many penny stocks fail.
Profiting from the Situation
Hopefully, by now, my point is clear; do not put your faith in a penny stock company’s CEO. It’s as simple as that. All of that being said, there is a way you can take advantage of the fact that some people do put their faith in the CEO of a company.
When people truly trust the CEO of a company, they will hold the stock for a long time. It’s something I would never do, but it works for some people. These people lock up the float and make it easier for the stock to run up and down. If you are aware of this, you can profit from it.
Additionally, when people put their faith in a CEO, a stock tends to move more on news and updates. I’ve seen stocks shoot up in price from a simple tweet or Facebook post by a company CEO. Once again, if you are aware of this, you can profit from it.
Always be cautious when dealing with penny stock companies. Try to see what others don’t so you can have a competitive edge in the market.