NEW YORK ( TheStreet) -- I spoke with Jim Cramer today about Halcon Resources (HK - Get Report), a speculative stock that I recommended with Jim a few weeks ago and which has since dropped 12%.
I reiterated my buy call, but that wasn't the only reason for discussing Halcon with Jim. The case of Halcon holds a few good lessons about investing in very speculative stocks.
First, the fundamental reason for the decline: Halcon reported the initial production profile for two major wells it is drilling in the Utica basin and they were a disappointment, with one returning 730 barrels of oil equivalent a day and the other yielding 1,652 Boe/d. Expectations were for one of these wells to yield closer to 2,000 Boe/d, although another well in the Southwestern Marcellus shale play had a more adequate result.
While the report was disappointing it was hardly disastrous and yet the stock cratered, dropping more than 50 cents a share last Thursday. This is the first takeaway from trading speculative stocks: There is a natural overreaction to bad news in the share price (as there is often an equally overdone reaction to good news when there is some).
I have bought more shares at the now-lower price and remain convinced that Halcon is an interesting investment but I have hardly bet the farm on it; that is the second takeaway from trading speculative stocks -- only invest as much as you are willing to lose.
I talk more about Halcon with Jim in the video above.
At the time of publication the author had a position in HK.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.