Trader Tom Strikes Again
A couple weeks ago, my good buddy Tom made 25% overnight by betting on bad news in the stock market. It’s a great example of how there’s opportunity in adversity.
Well, he’s done it again. But this time he put his money down on good news.
About 3 weeks ago he bought into a company called Radiant Energy Corp at $0.11 a share. He sold the shares this week for $0.28. That’s a yield of 154% in just 3 weeks.
Radiant Energy Corp makes a patented infrared pre-flight aircraft deicing system. Basically, the system is a hanger which the plane drives through before take-off. Most airports use a chemical called glycol to de-ice a plane’s wings. The InfraTek system by Radiant means you don’t need glycol, so it cuts out the expense of buying it. Environmental regulations are also frowning on the use of glycol, so the InfraTek system also gets around that issue.
Good News Is Good News For Small Caps
Radiant Energy got a good boost because of two announcements:
- They recently signed a distribution agreement with China to sell and license it’s technology there. People equate China with growth right now and that translates into profit.
- They also completed a private placement of shares. This is usually good news because it means a few serious investors like what they see and want to get in on the action. They buy the shares via private placement to get a discount rather than paying market price for them.
If this were a higher priced stock, the ROI for investing wouldn’t be nearly as good. But because it was an 11 cent stock, it wasn’t too difficult for good news to pump the price up and create a killer ROI.
That’s because, if a $4 stock goes up $1.00 you get a 25% yield. That turns a $1000 dollar investment into $1250. But take a stock from $0.11 up to only $0.28 and you get a 154% yield or $2540. It’s a lot easier to get a better percentage on a lower priced stock.
At the same time, investing in these small cap companies can also be a lot riskier.
Tom missed the boat last Friday when the stock hit $0.36. He was hoping that maybe it would continue to climb. That’s dangerous thinking and I urged him to get out and start looking for the next wave to ride. Luckily, he did and he still got $0.28 for it this week.
Maybe the stock will climb significantly again next week or rocket up next month. Who knows. But he made good money. And if you try and ride a wave for too long, eventually you get washed into the rocks.