Quartely Report

Here's how things have gone so far this year:


All in all, it's been a slow year for penny stocks: I've invested in 15 companies and seem to be waiting longer for them to pay off - and the majority of my holdings have fleas. I've been trading in penny stocks for over a decade now, and this has been the slowest year ever.

But then, that's not entirely a bad thing - my picks aren't taking off quickly, but they're not taking a fast dive, either - and a 6.6% gain may seem small, but considering that the S&P has lost 13.8% during that time period, it's really not that bad.

Weekly Summary

I've made a few acquisitions this week, moving some of the funds that were laying fallow in my account into companies that I hope will be more productive - but other than that, the overall value of hasn't changed dramatically from last week. Given the turbulence in the market, breaking even feels like a small victory


About half of my holdings are now big-board stocks that have gone south: Revlon, Rite Aid, Blockbuster, and Krispy Kreme. This is unusual, as my typical tactic for a penny stock portfolio is to invest in smaller firms whose growth will come from scaling up their operations rather than larger firms who are seeking to solve balance-sheet issues - but then, I'll take profit however I can get it.

Rite Aid (RAD)

Company:	Rite Aid Corporation
Web Site:	http://www.riteaid.com
Purchase Price:	$1.45
Current Price:	Click Here

Rite Aid Corporation, the nation's second-largest chain of retail drugstores, has been struggling under the weight of recent acquisitions, and today announced a first-quarter loss of over $150 million, sending its price on a downward spiral.

While the company is experiencing a severe case of indigestion, my sense is they can survive: they have been in business since 1927, currently operate over 5,000 stores, and have revenue growth of nearly 50% year-to-year - and while the loss seems significant, it's nothing that an $11 billion dollar corporation can't handle.

The company is already in the process of streamlining its operations to eliminate redundancies and market cannibalization, and I fully expect that they will show signs of recovery by the end of this year, and should be back in the black before long - and while the stock will probably take a while to recover completely, I expect to turn a fair profit within the next six months.

Blockbuster, Inc (BBI)

Company:	Blockbuster, Inc.
Web Site:	http://www. blockbuster.com
Purchase Price:	$2.55
Current Price:	Click Here

Over the past five years, Blockbuster's stock has fallen, in spite of the fact that the company has continued to prosper. There are two major competitors that were expected to steal their business - but recent events seem to indicate that they may be pulling ahead in the race.

First, Netflix was supposed to make the entire brick-and-mortar video store obsolete - analysts seemed to expect that the vast majority of customers are enthusiastic about technology and will stop shopping in meatspace as soon as a Web site came along to sell the same product, which is the kind of thinking that led to the dot-com crash several years ago.

Netflix has taken a significant number of customers away from them, but has become complacent and imperious, taking away valued services and ignoring the (literally) hundreds of customers who are complaining and threatening to take their business elsewhere. From their tone, it's unlikely they'll come to the realization that customer service is the key to success, and if they continue along this path, they'll follow in the path of PetSmart and PeaPod to become a footnote in industry history as a warning to others.

The other factor that was supposed to lead to Blockbuster's demise was the consolidation of rival chains: Movie Show Video, a sizable competitor from the opposite side of the tracks, bought out Hollywood Video in an attempt to steal away a significant share of the brick-and-mortar market by spanning more market segments and saturating the market. Unfortunately, it was a bigger pill than they could swallow, and MOVI soon declared bankruptcy.

And while Netflix is screwing their customers, Movie Show is screwing their stockholders, canceling their common shares and planning a reissue to placate their creditors and reward their employees for so efficiently running the company into the ground. After all, it worked for Delta Airlines, right?

And while the competitors who were expected to overwhelm Blockbuster have been busy doing "big" things that turned out to be big mistakes, Blockbuster itself has been quietly keeping its doors open and serving its customers ... and in the long run, that's what really matters.

Weekly Summary

It's been another up-and-down week, and with the exception of Krisy Kreme (which spiked on their earnings report), there's not been a lot of motion in either direction:


I had meant to open a few more positions this week, as about a third of my portfolio is sitting fallow in cash, but none of the stocks on my watch list seem to be sparkling, and nothing new has come to my attention of late.

KKD - on the rise

Since posting a $4 million profit, shares of Krispy Kreme has been headed north for the past three days - from an opening price of $4.40 on Monday to a close of $5.20 today, and it seems to be gaining steam.

Some pundits are cautious, and cite the past quarter's success as a fluke rather than a sign of recovery - but then, I bought in because I felt it was grossly undervalued: the stock was trading at more than $10 a share just one year ago and had fallen to that level from nearly $45 before the financial woes of rampant growth gutted shareholder confidence.

The firm is still going strong, and the local franchises don't seem to have suffered much - so I still have a great deal of faith that the corporation can straighten out its balance sheets and pull through.

Weekly Summary

Having sold off two of my positions this week, my penny portfolio is down to eight stocks:


Overall performance is looking good, but since I haven't identified any new investments (been to busy adjusting my main portfolio) about a third of my penny stock portfolio is currently in cash. I'll do some research over the weekend to identify at least two companies that show potential and get a little more of that money working for me.

Petel - Dump

Petel Incorporate has finally worn out my patience. I made a tidy profit earlier this year and sold about half my shares to lock it in ... and a good thing too, as the price has been headed south ever since. Here's what I've made on the remainder:


While I took a loss on those shares, I made a profit overall - earning $993.75 ($825 in January, $168.75 today) on a $540 investment. I do wish the company would have done better, but maybe that's just greed.

This only underscores the importance of taking profit when you can, rather than holding out in hopes that a company will continue to grow. The latter may be a good idea for blue-chip investments, but this is the pink sheets, and the rules are totally different.

FEEC Cashout

Shares of Far East Energy have risen sharply over the past two weeks, and it's gotten to the point where I can cash out and make a tidy profit, and so I did:


I still hold 500 shares in the company, so I can reap even more profit if it continues to grow at this rate - but I'll lock in some profits in case it takes a turn for the worse.

Weekly Summary

In spite of the turmoil on the big boards, my portfolio has edged back into the black this week:


This week's biggest gainers were KKD and FEEC - but I can't see a reason for that: neither has updated their financial statements or announced anything particularly positive, and the trading volume has not been unusual for either.

Hip Hop Flop

After seeing the videos taken at the "grand opening" of H3 Enterprise's second restaurant in Miami, I've decided to bail. While their flagship operation in Tampa looked well-planned and well-executed, the Miami franchise is a tiny place in a run-down strip mall - an embarrassment to a brand that's not established enough to be forgiven for such a mistake.

And so, like most of their customers, I'm getting out and probably won't be back:



Since the company was approaching my loss limit of 50%, it was probably only a matter of time before I bailed out anyway ... and I expect that, given time, I won't have any regrets for getting out early.