It seems that psychologists and economists have a term and explanation for almost everything we think or do. Some people suffer from obscure syndromes that seemingly defy logic; and are off in their own little world. Invented or interpreted, it’s tough to tell sometimes.
For example, one poor chap I was reading about was admitted to a psychiatric hospital suffering both from Cotard's syndrome and lycanthropy. First he believed he was dead, yet immortal (Cotard's syndrome) and second he thought he was a dog (lycanthropy). Unless you’re Freud, you might have a tough time with this person. I suggest looking into his childhood.
Closer to home, behavioral economists spend copious amounts of time studying the psychology of money and why it has such a magical effect on us. Until recently, behavioral economists didn't know very much about the psychology of money. That changed with an explosion of fascinating findings on how it affects our emotions, our personalities, our sexual behavior, our risk-taking and society at large.
If ever there was a time for economists to look at the way money impacts us on a daily basis, it’s now. The recent economic meltdown that has touched every corner of the globe is testing the emotional and logical mettle of penny stock and large-cap investors.
Another article I was reading noted how we have been plunged into a “psychology of recession” that could further damage the weakening economy. That loss of confidence has become very personal and people are worried about their financial circumstances.
Part of the gloom is psychological, they say, since some have yet to experience the deep job losses and economic collapse that has occurred in Japan and parts of Europe and the United States.
“People are now translating that into, ‘Geeze, maybe I do have to tighten my belt and be more cautious…” said one economist; adding that this just makes things worse. It pulls more demand out of the economy and will make it even harder for the economy to rebound.
Consumer confidence in the United States and Canada has been plummeting in the wake of the stock market collapse, ongoing credit crisis, and slumping economies. In 2008, the ongoing recession saw the Dow Jones fall roughly 36%; the Standard & Poor’s 500 index is down approximately 40%; and the Toronto Stock Exchange lost more than 40% of its value since June.
Is our “Recession Psychology” real or imagined? And does it really matter? Right now it seems that logic is the one thing not prevailing on Wall Street. Investors are dumping their large, mid-cap, and penny stocks like never before; some for legitimate reasons (bad earnings, raise cash, etc) others for no good reason at all.
And it’s the latter that is most confusing. It almost wants to make you throw up your hands and wonder where all the reasoning behind the stock market has gone. For example, here are two excellent penny stocks whose share prices have underperformed over the last number of months.
Why? I’m not sure really. And no, I do not hold positions in any of these companies.
In spite of having a huge cash position, no long-term debt, announcing new licensing agreements, and seven consecutive quarters of both year-over-year and sequential revenue and profit growth… Electronic Game Card, Inc.’s (OTC: BB:EGMI, Stock Forum) share price has tumbled close to 50% since August 2008.
In mid-November, EGMI announced that third-quarter revenue jumped 70% year-over-year to $3.04 million and increased 22% sequentially. Third-quarter net income climbed 106% to $1.69 million, or 2.8 cents per diluted share.
“Our company has never been busier with meaningful growth opportunity,” commented Lord Steinberg, executive chairman.
For the nine months ended September 30, 2008, EGMI’s revenues increased 84% year-over-year to $7.82 million. Net income jumped 154% to $4.32 million, or 7.1 cents per fully diluted share.
Deep Down, Inc. (OTC: BB:DPDW, Stock Forum) is another excellent penny stock that has seen its share price trend lower over the last number of months. All of this despite DPDW having a strong cash position, no long-term debt, reporting triple digit revenue growth, expanding its fleet, and announcing a new multi-million dollar contract.
In mid-November, DPDW announced that third-quarter revenue was up 140% year-over-year at $11.7 million. Net income soared to $1.6 million, compared to $200,000 for the same period last year. Year-to-date net income jumped 113% to $25.9 million. Year-to-date DPDW reported a (loss) of ($3.3 million).
“I am pleased with the positive cash flow results of this quarter's report,” commented company Chairman Robert E. Chamberlain, Jr. “Deep Down's financial position continues to show strong growth within our industry. Stockholders' equity remains strong and is now $54.6 million compared to $12.6 million on December 31, 2007.”
Really, I have no idea what sectors are going to lead the eventual recovery. But I do know that penny stock investors who get involved with excellent companies whose share prices are unjustly depressed could be rewarded handsomely.
Read more Stockhouse articles by John Whitefoot
