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We’ll get back to it in a minute. There’s a lesson or three to be learned in the ride penny stock American Virtual Cloud Technologies (AVCT) has taken over the last little while.
The ticker mysteriously joined the company of hot meme stocks and the big boys in our proprietary Trackstar database of the names generating the most investor interest.
Don’t expect some miraculous turnaround at AVCT, despite what you might read on a message board. While we wouldn’t call it likely, there’s a better chance this happens at BBBY.
The company continues to generate Trackstar interest on the announcement late last week that it plans to close around 150 stores as part of a massive cost-cutting strategy. We’ve seen it before, recently and most impressively from a company with a similar ticker – Best Buy (BBY).
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Penny Stock Wise Or Pound Foolish?
The emergence of American Virtual Cloud Technologies in Trackstar helps illustrate the difference between speculating in meme stocks such as AMC and Bed Bath & Beyond and an unknown penny stock.
AVCT likely surged in Trackstar because it was featured on a website touting a $7 price target backed by literally nothing, outside of a press release the company put out three weeks prior. In that release, AVCT announced board changes and noted it was exploring “strategic alternatives,” meaning it’s willing to sell itself.
This could come to fruition. It could push AVCT higher. Maybe even to seven bucks. Heck, the interest in the stock alone could trigger upside. Anything could happen. And, if you buy shares in AVCT at or around $0.19 you might get lucky and find yourself in a profitable trade.
The keyword there: lucky.
Because an investment in a stock, particularly one that trades for pennies and gets pumped on the back of press releases, tends to only have a flimsy bull narrative associated with it.
Doesn’t mean you shouldn’t take a chance on something like this once in a while. Just means you should be prepared to lose your investment and kick yourself for making what you might end up calling a stupid move.
Why Are Today’s Meme Stocks Different?
When you go into AMC or BBBY as a trader, hopefully you have a technical plan based on volatility, reliable signals, and the sense you’ve developed via talent, skill, years of experience, and a little bit of luck.
From an investment perspective, it’s easy to create viable narratives around these stocks. Not stories you use to try to convince yourself, but actual narratives based on how you’ve seen things go down before.
Like a retail turnaround.
For example, through the early 2000s, Domino’s Pizza (DPZ), #778 in Trackstar right now, traded in the single digits and teens. Despite that stagnation, the stock has returned 2,380% over its lifespan and 74% over the last five years.
Domino’s was left for dead. Then, it made fun of itself for its cardboard-like pizza in a series of ads where it promised to do better. Domino’s did better and created a solid digital and mobile strategy in the process. Before you knew it, DPZ was off to the races.
As DPZ took off, The Juice (we were babies back then without a daily newsletter) followed the stock and believed in the story the company was telling.
We bought. We held. We made money.
A little bit of luck, but more so, an educated narrative, rather than just a speculative guess.
Maybe you did likewise with Best Buy?
If you invest in AVCT today, you’re guessing. Speculatively.
But Forget About Conviction
Sometimes you just want to throw caution to the wind and take a flier. A long shot for a potential multibagger.
High risk. High reward.
To do this successfully – on a consistent basis – you need to be a nimble trader. You’re not acting as an investor with an IRA and your kid’s college fund at stake, you’re a trader. Something people do for a living after years of on-the-job study and maybe even some form of formal education.
Go back up to AVCT’s chart at the top of the page. We’ll wait.
When the press release hit, the stock soared from $0.15 to $0.38 in a matter of days. If you got in early and quickly got out, good for you.
However, if you bought at or near the $0.38 top, there’s a good chance you got shook out as the stock retreated to $0.32 in one day. You weren’t there for the brief runup to $0.46 about a day later. Even worse, maybe you were left holding the bag on the subsequent – and sudden – plunge to $0.22 and, as of Friday’s close, the upper teens.
With renewed interest amid buyout speculation, a similar move could play out.
As a trader, you have to be lucky and good to make money on a stock like AVCT. And, if you do, the number one thing to take away from the experience after cashing out is don’t get too confident.
Research shows, as traders, we’re more likely to remember our wins, leading to a crisis of overconfidence. We selectively forget our losers. We trade more frequently – while taking on outsized risk – because we’ve distorted our perception, making us think we’re better than we actually are.
The Bottom Line: Let’s face it. Speculation – be it around a feasible narrative or as a lottery ticket – is fun. And, from time to time, can make you some money. Maybe even a lot of money. The key is not to get too carried away.
Don’t get too confident when you win. Or too down when you lose. And, most of all, allocate a small segment of your portfolio for risky speculation, keeping the rest of your money in assets that have and we can reasonably believe will continue to stand the test of time.
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