Be a wise penny stock investor
With beginning and experienced investors alike still feeling the effects of an economic recession, the search is on for a responsible, low-risk way to invest in future assets. Enter the penny stock, defined by the Securities and Exchange Commission (SEC) as any stock currently trading at less than five dollars. Because penny stocks are so cheap, they have the potential to massively multiply an investment if the stock takes off; the price can easily rise by a factor of five, 10 or even more. Following these tips will help you successfully invest in these low-priced stocks.
Choose Your Broker. Many stockbrokers are not especially fond of penny stock trading, so they charge higher commissions for buying and selling cheap stocks. Even for successful investors, these fees can really eat away at profits. Worse yet, if you take a loss, that extra commission could push you right out of the market. Make sure you work with a broker who is willing to help, not hinder.
Be Informed. Although penny stocks are unique in some ways, investing in them is fundamentally no different from investing in more expensive stocks. Take time to learn as much as you can about general stock trading before delving into the specifics of penny stocks. That knowledge will form the foundation of your investment success.
Pick Listed Stocks. Even though they are very cheap, many penny stocks are listed on the NYSE, AMEX or NASDAQ. The major exchanges employ certain financial criteria when deciding which stocks to list, so an investor who chooses listed stocks knows he is investing in companies that are financially sound. Listed stocks are not guaranteed to succeed, nor are unlisted stocks guaranteed to fail; nevertheless, sticking with listed stocks is by far the safer option.
Research Thoroughly. Many investors fail to take basic information such as company earnings when buying stock. It is easy to see shares of stock as abstract quantities, not shares of a real company that does real business somewhere in America. Instead of falling into this trap, look up basic financial information on a company before choosing to buy its stock. Companies with solid revenue streams are more likely to succeed in the market.
Market Trends and Uniqueness. Small businesses that really succeed are usually in some hot industry, where many investors are paying attention. In addition, having a unique product or a great story tends to improve a company’s chances of rapid growth. If a company is in a hot industry, brings in solid revenue, and has some unique aspects, its stock is likely to take off in the near future.
Diversify. Because penny stocks are so cheap, it is fairly easy to invest in several different stocks at a time without tying up a lot of capital. Investing in multiple companies means you stand to benefit if any one of them has a run of success. There are no guarantees for anyone in the stock market, and certainly not for penny stock investors. Having a diverse portfolio, then, is one of the best ways to increase your odds of success.
Be a Skeptic. Because of their low prices, penny stocks are very vulnerable to price manipulation. Con artists may spread false rumors about a certain company to encourage inexperienced investors to buy, thus driving the price up, then sell their own shares to make a quick profit. Conversely, some schemes encourage investors to sell off their shares, then buy them up for literal pennies when the price hits rock bottom. The best way to avoid being caught in one of these schemes is to corroborate your tips as much as possible. If several independent sources say that a particular stock is a good buy, odds are that it really is a good buy. If just one source says to invest in a certain penny stock, move on to a safer investment.
Keep Cool. It is very easy for an investor who runs into trouble to start investing recklessly, hoping to make back his losses. It is even easier to get excited after a few winning trades, become overly aggressive, and lose it all on a few ill-advised investments. Penny stocks are volatile; to succeed, you need to be steadfast. Focus on making sound investments, and in the long run, you will reap the rewards.