I’ll admit it–I spent 10+ years trading penny stock special situations trying to squeeze a booger out of George Washington’s nose on any quarter I could find.
I was destined for Warren Buffett fame and fortune because I “did my homework” and had 10 copies of Security Analysis and The Intelligent Investor on my bookshelf. What a stud I was.
It was a lot of fun digging through SEC documents, calling up managers, chatting with other investors, visiting the firms, etc. The name of the game is try to collect as much insider information as possible, without it being official “inside information.” The difference between “official” insider information and “doing your homework” is about 10 years in jail, but the information is basically exactly the same. Semantics.
I eventually realized that stock picking is a complete waste of my time and that I am a total loser. I just rely on simple models run on a computer and enjoy watching the fancy lights whiz around.
Truth be told, I still have the “stock-picking” disease. In fact, I dabble in one-off situations in penny stock land.
Every gambling junkie needs their fix, eh?
My “fix” has been PRXI. If you haven’t heard the story, there are a laundry list of promoters talking about the merits of the investment thesis:
When I’m out of quant mode, I succumb to human bias more than I should. PRXI is a classic “get rich quick,” “the stock is a sure 3x if you just hold,” or “the market is stupid” type of play. In other words, I assume I will double my money in a week, the market is completely mad, and there is selling pressure from a mutual fund that is creating the opportunity, etc etc etc. The basic pitch is that PRXI holds these titanic assets that are worth a lot of money (2x the current stock price) and they have a stable operating business. How can one lose? An imminent asset sale and a subsequent home run for a patient investor. I tell myself these “stock stories” over and over in my dreams and it always works out. Well, I’ve been waiting for 2 years now…
How has PRXI done for me? In a nutshell–it feels like I’ve been on the Titanic crash.
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Summary
- Picking stocks might be the biggest suckers play on the planet.
- Punt on perfection; follow the model. I love quant.
About the Author: Wesley Gray, PhD
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