Below are lists of the top 10 open-market insider purchases and sales filed at the Securities and Exchange Commission in January 2010,  as ranked by dollar value. Company executives and directors are in the best position to assess the attractiveness of their firms’ shares, and here is how many of them are voting their wallets! Please note, however, that these are factual lists, not buy and sell recommendations. Dollar value is only one metric to assess the importance of an insider transaction.

The Marine Detail Sponge removes scuff and dock marks; polishes propellers; and removes dirt, scum, grease, oil, fish blood and salt residue, all while being safe for use on water crafts, fish finders, and GPS systems. The system also comes with an “Eliminator™ Chamois” which holds 8 times its weight in water and dries each vessel to a high shine.

SpongeTech’s COO Steven Moskowitz commented, “The marine products add significant value to our already popular product lines. We believe this is just what the marine industry needs to help keep boats and water crafts cleaner with an affordable multi-use product.”

The Marine Wash & Wax System is available to purchase online and is expected in retail locations this year.

SpongeTech® Delivery Systems is a company which designs, produces, and markets unique lines of reusable cleaning products for Car Care, Child Care, Home Care and Pet Care usages. These sponge-like products utilize SpongeTech’s proprietary, patent (and patent-pending) technologies and other technologies involving hydrophilic (liquid absorbing) foam, polyurethane matrices or other ingredients. The Company’s sponge-like products are pre-loaded with specially formulated ingredients such as soap, conditioner and/or wax that are released when the sponge is soaked and applied to a surface with minimal pressure. SpongeTech is currently exploring additional applications for its technology in the health, beauty, and medical markets. SpongeTech® Delivery Systems, Inc. intends to globally brand its products as The Smarter Sponge™.

The truth is, it’s hard to find a successful large-cap biotechnology company because most get acquired before they reach large-cap status. Companies in biotech  industry are always in need of cash, whereas  big pharmaceutical firms are cash-rich and are  in desperate need of pipeline drugs.  These small-cap biotech start up firms are there easy catch.

Most biotechnology companies are started by a brilliant scientist with an idea, sadly a brilliant scientist is not always a brilliant businessman.  These companies dream of becoming the next Genentech, Amgen, or Genzyme. But building a successful biotechnology company takes a lot more than just a brilliant scientist with a great idea.

Most of the biotech companies trade at sub-$1 levels, because biotech drug development is both extremely expensive and very high-risk. As a result, most biotechnology companies either fail in the clinical program or run out of money while trying.  Most pharmaceutical names are sitting on billions of dollars in cash, while their late-stage research pipelines are drying up.

Most Biotech company management  are overconfident, under experienced, and fail to truly understand the competitive landscape for their drug. This results in biotech companies reluctant to partner with pharmaceutical companies too early in the development process, because they think they can either do it alone or they will command a far greater price the further along they develop the asset. 

In theory, this is true. The difficulties of commercializing a successful biotech drug, however, only increase as development pushes further along. And successfully completing a Phase III trial is not the finish line, it is just the start of a whole new marathon that now includes preparing an NDA/BLA, getting that application passed by the FDA, manufacturing the drug, and then, managing a sales force, as well as Wall Street expectations. As a result, an asset that was partnerable after encouraging Phase II data becomes unpartnerable after the Phase III trial fails or the FDA requests additional data prior to approval.

What  they are  Penny Stocks?

While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

Trading Volumes

Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

 Does the company know how to make a profit?

While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return. 

Have an entry and exit plan – and stick to it

Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

How did you find out about the stock?

Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

Buy them before promoting. The best way to invest in penny stocks is by buying them before they are heavily promoted and hyped up in price.  Heavy promotional campaigns are important to penny stocks. Penny stocks are typically not covered by analyst. As a result, penny stock companies have to rely on heavy promotional campaigns to get the word out about their stock. If you get into the stock at the early phase of that promotional campaign, you could make a fortune.

Many penny stock will explode with in  few months of promoting.  If you check the history of penny stocks, you will find that most of them were trading at a decent price 15months before. However hard the market slams a stock, there’s always a chance the company will address its problems, perceptions will change and its share price will come storming back.

Buy the stock at low prices and wait for the price to rise so you can cash out big. Remember for  every stock, you should have an exit strategy.