Getting in on Early-Stage Companies
Question from a Reader: (links mine, in case you have not read the articles I think he's referring to)
Hi, I'm a very small time investor and I have a strong longterm belief in the alt energy sector. I have one gripe with the sector, though - the fact that it's hard to get in all the way at the bottom, ie: from the birth of companies. I have a feeling that much more growth will happen at that level, and investing in something like ICLN gets me into mature companies that have much less growth potential.
Would you be able to write about what a small time investor like me can do to get a better coverage of the market (especially the bottom end of the market) with limited funds. Ex: VC's if there are any publicly traded, or any other instruments I can't think of.
Really appreciate it. Oh, and congratulations on an awesome website! It's one of my favorites, and my one stop shop for alt energy news!
This problem is not unique to the energy sector. In general, early stage companies are very risky, and sometimes dodgy. Unlike more mature, listed companies, it's difficult to find good analysis, meaning that you have to do most of your own research. If you're investing just a couple thousand dollars in a company, the work necessary can make it very difficult to earn enough on the ones that do well (and gains can be as spectacular as the losses) to pay for your time.
However, if you have time on your hands, the place to look for spectacular potential gainers is in penny stocks. There are especially large gains to be had when a company gets a listing on an exchange, which means that they are now subject to a lot more oversight, and hence many other investors are willing to invest. One of my most spectacular gainers last year was US Geothermal (HTM), which I bought at $.85 before it got a listing, and it's now trading over $2 (it has been higher.) Other penny stock investors (I do very little investing in these companies) will doubtless regale you with stories of much more spectacular gains... but they seldom tell you about the losers. Part of the reason I do so little pink sheet investing is I find that for every US Geothermal, I end up with one or two dogs, so, on average, my pink sheet returns are no better than my returns on listed companies.
For those willing to brave the odds, however, I put together some tips last year about how to start your research on penny stocks by listing some common warning signs. Also, because these companies are very volatile, you are likely to be able to greatly increase your returns by knowing when to sell.
DISCLOSURE: Tom Konrad owns HTM.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
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