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Blog : Sometimes You Can Judge a Book by its Cover
by John Whitefoot on March 23rd, 2007
Ask any penny stock investor what happened on Tuesday, October 9, 1929, and they’ll tell you that it was the most infamous day on Wall Street; Black Tuesday.
However, this Sunday marks an anniversary I’m sure few are aware of. Black Tuesday did not come out of the blue. It’s not as if the markets were doing famously and then just decided one day to tank.
The first of many ‘mini’ crashes and recoveries began on Monday, March 25, 1929.
While most penny stock investors are aware of the basic background of Black Tuesday, many of you may not be aware that the crash was precipitated, in part, by a book. In 1924, Edgar Lawrence Smith published his slim volume Common Stocks as Long Term Investments.
Initially unheralded, the book was destined to move markets as never before and was partially blamed for the crash of the market in 1929.
Edgar Lawrence Smith was one of the early sages of Wall Street. Tracking data back to the mid-1800s, Smith discovered that stocks steadily outperformed bonds. Up to this point, stocks had been dismissed by conservative investors.
Smith started off his study with a hypothesis: Stocks would do better in times of inflation, and bonds would do better in times of deflation. It was, as Warren Buffet points out, a perfectly reasonable hypothesis.
Smith was also one of the first to note the cyclical nature of the stock market.
The book provided nonprofessional investors with the information and confidence they needed to take on the markets themselves. It was the dawning of a Wall Street Reformation.
Unfortunately, this new found investing bravado also helped inexperienced investors buy inflated stocks on margin.
What this means is…that instead of buying your stocks outright, you put down a little cash and buy the rest on credit. That may not sound like a big deal...but it starts to get a bit hairy when your broker asks you to cover your margin.
While Smith may have opened the door to 'what' the stock markets are all about, many investors did not walk away with the 'how' to invest. Or so history tells us.
Fast forward 78 years this March 25, and we have to ask ourselves, have we learned anything? With information more readily available to us, I think, as penny stock investors, we are much more aware of 'what' is going on around us. I’m still not convinced we know 'how' to invest any better though.
And it’s not because we don’t want to know. 'Penny Stocks' is one of the top 10 financial searches on the Internet. In fact, more people searched for penny stocks than for terms like: stock broker, NYSE, and stock pick. 'Penny stocks' is searched 15 times more than 'blue chip'.
This means there are a lot of Americans looking for accurate information on penny stocks. But where to turn?
Fortunately, there is a newly published investing tool that not only explains the 'what' of penny stock investing, but most importantly, it explains the 'how'.
Understanding Penny Stocks introduces investors to the world of penny stock trading. All aspects of profiting from low-priced shares are explored in detail, based on the experiences of the leading authority, Peter Leeds.
Readers discover how to limit risk, avoid common pitfalls, and find the highly profitable gems among the thousands of low-priced investment choices.
While nothing can guarantee you success in the stock market, Understanding Penny Stocks can certainly help point you in the right direction; making you a smarter penny stock investor.