Low Float

[form4]

Here's where my logic has taken me recently... I'm looking for reporting companies with a very low float, with little / no debt, a decent amount of cash (no need to dilute), making revenue (muy importante), with a large percentage of shares owned by insiders (not just one insider). It typically takes a while for these stocks to move, but a good buzz / press release sends them, as does as an insider / institution buying shares (fun to keep an eye on the level 2 and filings).

Examples:
JLWT
BOBS
WEST
GTIM

Any and all thoughts are welcome.

[Skydaemon]

Comment 1: I like how you think.
Comment 2: I'd like these a whole lot more if they had a minimum daily dollar volume related to the average daily trading volume. Spikes in price don't mean anything if you can't sell without decimating it. Stocks that can't even trade $20k a day are deathtraps, and really I prefer > $100k to feel good about them but I could sometimes skim less.

I think I'd probably make the effort to run through some charts/info on lists like this.

GTIM /WEST - the trading volume on these two is so bad I don't think I could trade it even in small quantities and make it out without losing my shirt.

BOBS - looking at the moving average cross down and thinking not a good time. But I do like the stock and company characteristics for later. Interesting because it has an obscene gross profit margin and it's sitting in brazil which is a somewhat healthy economy.

JLWT - I really like this one as a stock, but not convinced it's not at a top. I can't tell with this one right now. If this pulls back several months down the road it could make a good one. For now I can't tell and leaning slightly negative so walking away.

BOBS/JWLT trading volume is also quite low, but you should make it out with a really small trade.

[form4]

Thanks. I agree with the 100k plus average volume for chart reliability. Especially moving averages - stockcharts.com states this. (Is this what you meant? If not please explain.) Personally the only reason I'd look at charts for these low floaters is for longer term overview.

I was definitely thinking long term plays here - although, like you eluded to one big sale effects your sleep if you're holding. I hadn't considered making small trades frequently on these but if the spread is tight it could be worth exploring.

As far as JLWT goes yeah I'd bet it comes back down again. Seems to be a pattern. Possibly a group newsletter type of deal as the waives go up and down over time (look at the 3 year chart). Very small number of shares out there as insiders own a bunch.

For revenue growth potential, I agree BOBS is the best of these 4. I watched as it broke a dollar a ways back. Slow and steady since. The last time I really researched this company they mentioned something about litigation, which is why I watched as it kept breaking resistance. lol

[Skydaemon]

It's close to what I meant but slightly different, and I care for a different reason than stockcharts. Stuff you read about on most places like stockcharts are usually focussed on mainstream bigboard stocks, not pinksheets or off the radar bigboard stocks. When you see them say 100k shares the point they're trying to make is actually not going to be valid in most off radar stocks.

Back to your example:

GTIM 890 (13 week average daily volume), last price $5.25 = $4,672 worth of stock trades in an average day.

For GTIM it's the $4,672 number that I care about, I prefer this number to be over $100k, but I can accept $20k if I am looking to do only a small trade.

There's several points about volume, and it's actually about dollar volume not share volume in both cases. The difference really sticks out in pinksheets, especially in subpenny or similarly low priced stocks, but you'd almost never notice it in bigboard stocks because they tend to have higher prices in general. It does happen to a few off radar stocks in bigboards too though. In pinksheets you can find a stock worth .001, where 1 million shares is only $1000. You won't find stocks like that on big boards, and it's not a good stock to be trading even though it trades a million shares a day.

Point 1) The main reason I look at volume is to figure out how much is safe to trade in a stock.

If you try to sell more than the average volume you'll find that it's really hard to do without destroying the stock price. In some cases you'll find you'll have to sell it in chunks spread across multiple days or weeks to avoid losing everything, even then you're going to pay multiple commissions trying to unload which will make you unhappy.

As a rule of thumb, I try not to trade more than 25% of the average daily trading volume unless I want to gamble losing my possibility of profit. Sometimes you can do 50% but that's quite risky and I would only try it on a high volume stock.

The act of selling half the trading volume of a stock in a block will _cause_ the price to drop before you manage to sell and you won't get what you should.

Point 2) Stock charts and such in low volume become meaningless, but so does fundamental analysis. Your filters seemed to be focussing on fundamentals of companies which is why I thought this would also be important. It's the kind of analysis which would have much better results on normal trading stocks.

When you have stocks with extremely low trading volumes, and their charts look choppy or detached with lots of gaps, trading these stocks is not about fundamentals. It's a reallly risky type of trading which focusses on trading "broken market mechanics" and has little to do with the stock or company. The only real way to win that kind of game is trying to trade very tiny trades (like $100), waiting long periods and being patient trying to sell that whole time for your price, and hoping to take advantage of broken mechanics to get a profit. In some cases it can be a high percentage, but you're making $100 at best for a lot of work and risk and really it's only a few rare traders that will generally do it.

If you're not trying to trade broken mechanics, or if you're interested in trading more than $1000, it's best to avoid those stocks. This is also why these stocks have a hard time gaining normal trade volume for years, because most investors avoid them like the plague.

Remember also, all it takes is one ex-employee with $20,000 of stock to sell in a market order to destroy the stock price. It's really vulnerable to surprise trades.

Point 3) It's important to note that averages are exactly that. When you are really wanting to sell or buy you'll find it can drop to 10% of the average volume and really make life hard for you. Similarly when you're desperate to sell it can balloon and crush the price before you can get out.


So to go back to GTIM. The average dollar volume is $4672, so i'd say it's risky to trade more than about $1100 of this stock. On the surface it looks like you'd be waiting an average of 1-3 months to make about $160, of which you'd lose about $60 when you tried to sell it. If I look at the intraday chart, buying or selling 100 shares can push the stock price up or down by .35. So if it's sitting at $6 and you try to sell 100 shares (about $600 worth) you might really get around $5.65 because selling that much appears to drop the price around that. You can cause yourself to lose about 6% just from the act of trying to sell $600 worth on a slightly below average day.

Summary) There's a difference between low float stocks, and stocks with broken mechanics. Most people that say low float stocks, mean stocks that will move quickly when they go (in either direction). Broken mechanics stocks are a whole different thing. It's possible to find low float stocks that have reasonable daily trading volumes and they're much more healthy to trade.

[form4]

Excellent post. At first review I 'd say that I'm mostly referring to what you describe as broken mechanics. Although the float is a contributing factor. Particularly when there is buying pressure, I'm contemplating.

My thought here is based on the premise that a company with solid fundamentals, operating on at least a sustainable revenue, with a low float, rarely, if ever, has bad press releases or dilution. Worth noting here is that these types of companies are in relatively boring sectors - e.g., restaurants, logistics, widget manufacturing, etc.

As a result, if we find a place that has historically shown support, then, ideally, it will eventually go up. Particularly if they continue to increase revenue / profit, it becomes a take-over candidate, it has a little buzz once every now and then - like in anticipation of a certain quarterly report every year (cyclical), etc. (A high amount of insider ownership can help to increase confidence in finding this support as it keeps the market makers in check. i.e., such a company as that mentioned tends to have a common employee option exercise price.)

Still, this is a work in progress. You've given me lots to think about - including that which I did not discuss. Thank you.

[billwatsonn]

Low float stocks are often volatile and very well known for making explosive upside moves.Low float shares an attractive investment option for us because these stocks quickly without any substantial institutional support can move higher.