Penny Stock State of Mind.

Have you ever seen a microcap stock go from unknown and illiquid to a 10X price jump and a 1,000X liquidity increase? I know I have and, if you have been around the microcap space for more than a few hours, you probably have too!

Just the idea of buying a stock for pennies and becoming a millionaire overnight is enough to drive countless retail investors to buy microcap stocks every day. Unfortunately, that “get rich quick” mentality is killing the microcap space! Not only are high school kids, trading on their lunch periods, enchanted by the idea of fast cash but more and more microcap CEOs are too.

In my opinion, microcap CEOs can be split into 3 buckets;

1. CEOs who are trying to build businesses with real value,

2. CEOs who are trying to build a market for their stock,

3. a combination of both.

In my experience, 1s have the highest chance of success, 3s can succeed, and 2s are destined to live the life of penny stock hustler (unless they change). 

1s and 3s usually understand that they need to build value in their company and, eventually, their stock’s value will follow. 2s usually think the opposite.  For 2s, they need to have a $100 million market cap and trade $1 million a day so that they can raise millions of dollars to build their business.

Unfortunately for 2s, it’s nearly impossible to create a liquid, high-priced stock with no underlying business value. If a 2 somehow manages to do it, there are very few investors looking to invest significant capital in a company with little tangible value.

Now it isn’t necessarily the 2s faults. Many CEOs went public thinking a public stock was a license to print money.  When they find out it isn’t, many end up believing market cap and liquidity will turn on the money machine. While liquidity and market cap can help generate funding, it is usually smaller amounts, less company-friendly, and short-lived (not to mention, generating liquidity and market value without tangible value is expensive!).

In short, don’t be a microcap CEO who is chasing the quick money and don’t let others divert your focus. Build a business with real value and eventually, the market will realize that value and reward you!

 

What do you think? Do you know any 1s or 2s? Have you ever seen a 2 succeed?


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.
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Innovate or Die – A Business Lesson From The Venetian Empire.

Innovate or Die - A Business Lesson From The Venetian Empire.

A few weeks ago, I read an HBR post about “Why Innovators Should Study the Rise and Fall of the Venetian Empire“.

The post discussed how from 697 to 1797 AD, Venice’s technological acumen, geographic position, and unconventionality combined to allow the Most Serene Republic to flourish. But Venice’s 1000 year success story was quickly ended because the Venetians were focused more on exploitation (of existing paths to success) than exploration (of new paths to success).

When rapid changes in technology began to shape the world, Venice quickly found itself stuck the past. Venice’s focus on galley ships made sense when the Mediterranean was the most important trading waterway. But, the invention of ships that could survive at sea for months, in addition to the expansion of global trade to encompass the seven seas, weakened Venice’s competitive advantage.

This reminded me of how companies like IBM are now be playing catch up to companies like Apple and Microsoft that seemingly came out of nowhere. (And Apple and Microsoft are trying to keep up with companies like FaceBook and Snap.)

Technology and globalization are making the concept of constant innovation increasingly important. According to Professor Richard Foster from Yale University, the average lifespan of a company listed in the S&P 500 index has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today.

So remember, if you rest comfortably in your success there is someone else working hard to change our world and that will change your business.

 

I want to know, how are you innovating? Message me or share in the comments!

Read the full Harvard Business Review post here: “Why Innovators Should Study the Rise and Fall of the Venetian Empire


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.