Tuesday, March 8, 2011

Leeds, Invest in Penny Stocks

I have always shied away from buying penny stocks, although admittedly on occasion I have sold penny stocks. Oops! So I thought that Peter Leeds’s Invest in Penny Stocks: A Guide to Profitable Trading (Wiley, 2011) might expand my horizons. Unfortunately it only reinforced my image of the penny stock world. Leeds uses this book as an extended advertisement for his stock picking newsletter. Although he claims that he and his team take no compensation from companies they promote, have no vested interest in their picks, and offer a money-back guarantee—in brief, they aren’t penny stock sleazes, the self-promotion in this book is obvious. The author’s photo even graces the dust jacket.

The method the team uses to sort through investing possibilities is called, of course, Leeds Analysis. It has, the author states, “rapidly become the standard in penny stock research.” (p. 33) It is a mix of 80% fundamental analysis, 10% technical analysis, and 10% “third level analysis” such as branding, employee poaching, and the habits and personal life of top management. In brief, it crunches the numbers, looks at the charts, and adds qualitative analysis. As described, it is an exhaustive (and exhausting) process that few individual investors would want to undertake. How much easier just to subscribe to the newsletter—and then, as the author constantly stresses, perform your own due diligence. (The stock pickers don’t let you off the hook that easily.)

It’s too bad that this book hypes a service so mercilessly because, in fact, it’s quite a decent overview of stock screening procedures that can be used for selecting stocks in any price range.

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