Penny stocks. Have you ever played them?

I have stories. Quite a few stories.

Got started with self-directed investing eight years ago at age 36. It was 2009 and the recovery from the recession was underway. I started out with an oil index fund, figuring that was a sure thing. The problem is that it moved slowly. Meanwhile I was watching some other "blue chip" stocks at terrible lows moving faster, namely Visa and CBS. I was like a kid in a candy store. I wanted a little of everything. Of course I didn't have enough funds to buy 'em all, so I jumped around and then jumped around some more. Most often I took a small loss or broke even, then I was off pursuing the next possible big mover. Boy, did I lose a lot of money in commissions getting in and out like a revolving door!

Anyway, I started reading stock trading discussion forums and became convinced that penny stocks were the way to go. I bought many, but my two largest holdings were a base minerals exploration company with a promising project in Canada and a micro-cap tech company that was developing an online translation program. The former put me up six times my initial investment within several months. The latter had me ahead seven times my buy-in within a couple of months. In both cases the "most informed" investors on the discussion forums were insistent that much better things were to come. I watched the tech company nosedive and pulled out most of my money just a few cents above my original purchase price. With that cash on hand, I started sinking it into the mineral exploration company, which was also experiencing a stock price decline, but at a slower rate. I figured I was getting these shares at a bargain basement price.

Years go by. There have been some positive developments (including a partnership with a mid-cap developer) and the "pounds in the ground" are still there in that promising mineral site, but the stock is worth only a fraction of what I had paid for even my cheapest shares. I continue to hold it because I won't make these paper losses real and I believe, perhaps stubbornly and in futility, that the stock will once again resume its upward climb when this commodities cycle plays out.

So, yeah, many painful lessons. Many golden rules of investing broken, primarily "don't put all your eggs in one basket" and "don't get greedy." Fortunately I didn't get in over my head. A couple of the posters on the discussion boards said they were taking out second mortgages to free up more money for their investments. Yikes!

Other stumbling blocks that come out of nowhere, particularly with penny stocks, are share dilutions to raise finances, "short" reports that cast companies in a poor light and cause their shares to tumble, lawsuits that can drop share value by 10% to 50% in a single day and disappointing drill results/sales figures/quarterly revenues that put a large dent in share performance, and share manipulation that can cause a "whipsaw" effect, whereby shares plummet 20 to 50% within hours and then recover before the end of the day.

It's not for the faint of heart. And yet I still find myself tracking the latest flash in the pan, still fascinated by the potential to make big money quickly, even though losses are the more likely outcome, just like Vegas.