The Flow of Consciousness

Yesterday, Friday, June 12, 2009, was a day that I learned a lot about the perniciousness of the stock market and my own threshold of nervousness and composure.

The stock for Spongetech Delivery Systems (SPNG.OB) opened the day at $0.235, peaking at $0.29 somewhere around 11:45 I acquired Thursday an additional position at $0.2399, but only got half of what I wanted because I had the order on the table since .22 and feared that perhaps my order was too large at that price to be filled. I decided to acquire the remainder at $0.285, but managed to get it at $0.2801 near 10:45. This put my average position at $0.12, as I had nearly approximately 72,000 shares below $0.10.

Near 12:30, a massive sell-off began. The price dropped from approximately $0.285 to $0.26 in just a few minutes. It bounced back up to $0.27 around 12:45, but continued to fall after that. Idiotically, I decided to put another $500 in at $0.24, think that the drop was just a hiccup back to the opening price. Boy, was I wrong!

It nearly immediately spun out of control, dropping fast, sometimes by more than a cent between page refreshes. The ticker went red at approximately 13:15.

When it hit $0.22, I figured it was funny business. I had read some articles posted by @_thedean and some others earlier in the morning which warned of a major pump-and-dump scheme going on, and had set a stop at 20 cents in order to protect my profits, but stupidly and without real reason removed it when I saw the stock hit $0.26. I was unfamiliar with the people who posted these articles, and in my naiveté ignored them.

When SPNG hit $0.18, I knew I was in trouble. I set a stop limit at $0.13/$0.125 so that I wouldn’t go into the red (remember that my average position is $0.12). I hoped it would stop around $0.15, as that had been a level of support days earlier, but it didn’t stop there. $0.13 came and went, and my limit order never executed because the stock was at $0.11 within five minutes. I felt nauseated as a I watched my healthy green profit become a blood red loss.

SPNG dropped ~73% to $0.075 in 65 minutes. It bottomed out around 13:55. My holdings in SPNG lost $23,770 in value in 65 minutes. My nearly 200% gain dropped to a nearly 40% loss in 65 minutes.

I decided against taking any loss, as I couldn’t afford a loss of $12,000. I decided to hold on–chasers would bring the stock back up before the end of the day. Lo and behold, they did. SPNG ended the day down $0.065 at $0.175, a 27.66% loss.

I learned several lessons from this experience.

When you read troubling news, set a stop and stick to it. This was my number one error of the day. Had I adhered to this, I could have preserved profits of my sub-$.20 positions and participated in the massive buy-in which occured during the two hour rebuild of the price. This leads me to the next lesson…

If you think it’s going to tank, sell high, buy low. This is especially true for penny stocks like SPNG. Selling at $0.20 and buying back at $0.10 would have DOUBLED my holdings, and I could have had some excellent profits selling those shares at $0.175 at the end of the day.

Hope is worth nothing on the stock market. Hoping that the price will come out of free fall is like hoping that a disease is going to go away untreated. It might, but more than likely action and/or preparation is better than inaction and/or unpreparedness. Thanks to @travolto and @kosovar for reminding me of this.

Take a profit more often, even when you’re long. I’m a long trader most of the time. I hold for weeks, SPNG is no different. However, I admittedly got greedy as I watched my gains hit 100% then 200%. My initial position was at ~1400% gain at the peak yesterday. Turning ~$400 into ~$5500 is pretty awe-inspiring. However, I should have been taking profit occasionally and buying back on dips. I really should have taken a profit at the major support levels of $0.10, $0.15, $0.20, and $0.25. I may have made even more money had I done that, and I wouldn’t have been hit as hard by this fallout.

Do your own research so that you have only yourself to blame. I do this and have always done this. I rarely accept on faith anything anyone I don’t know personally tells me. I did my own research on the pump-and-dump thing, but fell to my own inexperience. This leads me to my next lesson…

When others warn you about something, listen to them, because they probably know more than you. They might be right; they might be wrong. Nonetheless, when money is involved, caution is paramount. The guys I follow on Twitter and StockTwits certainly know more than I do, but I chose to haphazardly embrace their warnings and I got burned because of my own inexperience.

If you start to go negative on a massive sell-off, it may be wise to hold. I can’t find who said it, but “you never lose until you sell.” Be careful when applying this philosophy, because once a stock hits $0, you’re screwed if you’re still holding.

Use discretion when twittering about stocks; don’t give away your stops. Someone else (@stockguy22?) said this before me. Never give away your stops. That’s private information which someone could very easily use against you. What very well may have happened yesterday is that someone with a lot of shares sold them very low, triggering enough other peoples’ stops that there were a ton of shares available on the market at a very low price. A few people made a lot of money yesterday, and lots of people lost a lot of money or didn’t get the profits they wanted yesterday.

Don’t panic. Set a goal and execute. I should have kept my stop, and when I didn’t, I should have set it higher with the clairvoyance that the stock was going to keep falling. Buying back even a penny lower would have saved some profit somewhere along the line.

What was the cause of this mess? All fingers point to profit taking. Someone on Google Finance’s SPNG board has another theory.

I invite you to check out my Twitter stream while using Nested Twitter Responses to see responses to my inquiries in my panicked state. I’ve included relevant portions below for your enjoyment. Remember that it’s in reverse order, so read bottom->up. Also, ignore the “# hours ago”, it’s valid as of the time I copied the posts from Twitter.

1. $SPNG hovering around .18 right now. If it closes above .20 after the nearly mortal wounds it took after lunch, I’ll be ecstatic about 22 hours ago from Gwibber
2. Well, if nothing else, my stock panic today will make for an excellent blog post over the weekend about 22 hours ago from Gwibber
3. @FlyingUrchin Thanks for the headsup. I’m all in on $SPNG right now, steadying my stomach after it dropped 50% at lunch, rebounding now about 22 hours ago from Gwibber in reply to FlyingUrchin
4. EVERYTHING IS FINE, NOTHING IS RUINED #FB about 22 hours ago from Gwibber
5. @HisRoyalDoognes thanks for the headsup. I’m currently all in $SPNG and hating myself for ignoring warnings of a pump and dump today about 22 hours ago from Gwibber in reply to HisRoyalDoognes
6. @cpruette profit taking. check out @_thedean as well as a few tweets earlier I made. someone called it, I ignored it in my newbosity about 22 hours ago from Gwibber in reply to cpruette
7. @cpruette I wish I had some spare cash to buy it this cheap. Contemplating selling $INAR and $ONFI for a loss and putting the money on $SPNG about 22 hours ago from Gwibber in reply to cpruette
8. I uploaded a YouTube video — Jane’s Addiction – Jane Says – Pittsburgh – 6/10/2009 http://bit.ly/RpeBG about 23 hours ago from Google
9. OK…looks like $SPNG is bouncing back up a bit. meetings for the rest of the day. getting my mind off this vomit comet for now about 23 hours ago from Gwibber
10. . @travolto so profit taking = folks sell much lower than the stock is currently worth? selling high and buying low on the way down? $SPNG about 23 hours ago from Gwibber in reply to travolto
11. Folks, I’m hitting losses on $SPNG. Explain to me the newb trader the logic behind selling a stock at 1/3 of what it’s worth and tanking it? about 23 hours ago from Gwibber
12. $SPNG my stop loss just triggered. I knew I should have kept it at .20 when I set it earlier today. @_thedean looks like I got burned about 23 hours ago from Gwibber
13. . @mikeklass yes. you can hate me for tweeting too much. Gonna be quiet for the rest of the day, though–meetings for eternity about 23 hours ago from Gwibber in reply to mikeklass
14. dammit dammit dammit $SPNG is tanking HARD HARD HARD. setting a stop at $1000 profit..will buy back in if it corrects later about 23 hours ago from Gwibber
15. crap crap crap crap crap $SPNG just nosedived. “should I stay or should I go now” this company is still sound, I think I’m staying about 24 hours ago from Gwibber
16. . @cpruette crap crap crap I just got another position at .2403 and I’m spent on cash…dunno if I can offload others fast enough to get in about 24 hours ago from Gwibber in reply to cpruette
17. uh oh…who sold $SPNG at .26? THIS IS NOT PROGRESS, PEOPLE. I don’t like being down this much on new positions…. 9:57 AM Jun 12th from Gwibber
18. @KoSoVaR and I realized that it’s your replies that mess up gwibber. I don’t know why yet, though… 9:49 AM Jun 12th from web in reply to KoSoVaR
19. @KoSoVaR negative. I ended up sticking in :-\. I’m out at 50% loss, otherwise I’m staying long. 9:48 AM Jun 12th from web in reply to KoSoVaR
20. . @cpruette moreover, I don’t think we’ll see another sub-.30 opening 9:47 AM Jun 12th from Gwibber in reply to cpruette
21. . @cpruette my trick is that I’m long on $SPNG. I salute the shorts, but I’m in until .55 or greater 9:42 AM Jun 12th from Gwibber in reply to cpruette
22. . @cpruette I don’t see SPNG slowing down anytime soon. I took a position at .2399 and .281. I should have gone bigger at .2399 :-\ 9:42 AM Jun 12th from Gwibber in reply to cpruette
23. don’t hate me ’cause I’m makin’ money. hate me ’cause you’re too lazy to try it yourself 9:33 AM Jun 12th from Gwibber
24. new $SPNG position drops my sellout price to .55 to cover my student loans. please please please let it happen. 9:15 AM Jun 12th from Gwibber
25. Ugh. I should’ve put the money I put in $SYMX and $ONFI on $SPNG instead 9:09 AM Jun 12th from Gwibber
26. taking another position at 0.285 in $SPNG. I wish I would have done that yesterday at 0.24! 8:52 AM Jun 12th from Gwibber
27. @wallstreet1929 I saw that and retweeted it. I’m watching cautiously. 8:32 AM Jun 12th from Gwibber in reply to wallstreet1929
28. Excellent article on investing in $SPNG http://is.gd/ZTLT 8:21 AM Jun 12th from Gwibber
29. ♺ @shawnp0wers: In ~4.5 years, the aliens near Alpha Centauri will wonder why they can’t watch I Love Lucy on their analog brain implants… 7:56 AM Jun 12th from Gwibber
30. $SPNG at .61 is my goal. At that price, I can sell and pay off my student loans immediately, saving $300/mo for 20 years, plus $27k interest 7:53 AM Jun 12th from Gwibber
31. $ONFI what the hell? what the hell? what the hell? Probably going to dump it if it hits 50% loss 7:31 AM Jun 12th from Gwibber
32. seriously. who just sold $ONFI for .09? This stock is probably worth .25 if peoples’ analyses are correct. 7:04 AM Jun 12th from Gwibber
33. $SPNG is my hero, but I’m not blinded by the dough it’s making me. Cautiously proceeding, hopefully we’ll see $1 soon 9:55 AM Jun 12th from Gwibber
34. @_TheDean that’s very troubling…I think I might be setting a stop today… 9:39 AM Jun 12th from Gwibber in reply to _TheDean
35. Amagamated life and stock update for June 11, 2009: I’ve been incredibly busy these past six weeks or so s.. http://twurl.nl/gizlub 8:25 PM Jun 11th from twitterfeed
36. ♺ @liberty_76: Major PA Legislative Victory Scored! 3 privacy bills passed out of committee
    http://bit.ly/vLb3X 5:14 PM Jun 11th from Gwibber
37. @lionsharevc @marxiey what’s your rationale behind $IVOB? 5:00 PM Jun 11th from Gwibber in reply to marxiey
38. currently at 179.06% gain on $SPNG on all positions. REALLY kicked myself that I didn’t go all in last Monday at 0.039 4:59 PM Jun 11th from Gwibber

With any luck, SPNG will return to .30 and continue to climb. It’s a sound company with sound financials and great products. It might just take longer to hit my target of $0.55. However, I’m proceeding cautiously, and setting my stops along the way.