Penny Stock Picks and Profits, a how to buy Penny Stocks guide
How to Profit from Penny Stocks pt. 1
From: www.PennyChase.com
1. What are penny stocks?
Penny stocks are shares that trade from a fraction of a penny to $5. But the truest form of a penny stock is a stock that trades on the over the counter bulletin board exchange (OTCBB). The Securities and Exchange Commission (SEC) considers any stock below $5.00 per share to be a penny stock. Stocks with less than $50 million in total capitalization can be considered penny stocks.
They are riskier than ‘Big board' or NYSE issues, but have tremendous reward potential. Some penny stocks have gone from 25 cents to $20.00, while others have become worthless. Penny stocks are high risk, high reward investments. Their speculative value can be extreme, and their visibility of information and / or accessibility of operational results are usually very poor.
Penny stocks represent all the small companies across America that are great and have yet to grow or be discovered. Not too long ago even companies like bank of America were trading as penny stocks! It does not take a lot of money to purchase or control significant amounts of penny stocks. That is why so many investors like them. They let you control many shares of a given company inexpensively.
2. Why buy penny stocks?
The greatest upside in penny stocks is that your small investment could turn into colossal sums of money very quickly. It must also be noted that penny stocks tend to decrease in value just as rapidly and can become worthless. The upside of penny stocks is the ability to turn a small investment into a fortune. Keep in mind that penny stocks are very volatile and can produce significant shifts in high/low pricing very quickly compared with other stocks.
Some important factors to consider when buying penny stocks include:
• There is a lack of history with these stocks, or that history can be very difficult to uncover.
• Minimum standards for being listed as an OTCBB/Pink Sheet company, can allow for inaccurate financial reporting by some companies. For example, the OTC does not require companies to file documents with the SEC in a timely manner.
• Often times the liquidity of these stocks are low and can cause investors difficulty in getting in and out of these stocks at a given bid/ask price.
• Limited information is available to the public regarding this type of low priced stock. It is also important to note that they are not required to fulfill minimum standard requirements in order to remain on the exchange like large cap stocks.
All of that being said, penny stock in particular represent a huge earning potential for the average investor. While it is true that people do lose money while investing in these stocks. Great sums of money and percentage gains are also made daily in these markets. That is what keeps investors coming back to penny stocks.
3. How to buy penny stocks?
Sign up with a brokerage firm. The three options available when choosing a brokerage firm:
• Full Service- Firms generally have high commission and fee structures. Their advisers are working on commission, so any information they provide regarding investment options may be biased toward the firm's or the adviser's vested interest. The majority of these firms will try to steer you away from penny stocks and into their other products where commissions are highest.
• Fee Based Service- advisers working on a fee based structure are paid to gather the information needed for you to make your decision about investing. They may or may not be incentivized to steer you towards certain investments. You'll still have to pay trading fees and their advice costs you extra.
• Online Discount Brokers- Commission and fee charges are the lowest with online discount brokers. Online discount brokerage firms provide no investment advisory services. These companies have the most experience and tolerance when it comes to penny stock investments but remember you arte on your own. Yon will get no investment advice from these firms.
After picking a broker to buy your shares through, you must now choose which stocks you are going to buy. Information on penny stocks can be found online under SEC listings, Pink Sheet listings and "over the counter" (OTC) stock listings. You will have to do a lot more legwork to make sure the company you're looking at is legitimate. The majority of penny stock companies are start-up operations, so financial statements and profit/progress reports will be limited.
4. Which penny stocks should you look for?
In the case of penny stocks, the amount of effort and research you put into finding a worthy stock is directly proportional to its success. It is imperative in the long term to do some sort of research on the stocks you are considering. Too many times an investor will simply go on the advice of a so-called professional or listen to water cooler talk for stock tips. Don't do this! While professional advice is a must to truly benefit from what penny stocks have to offer, a savvy investor must do some of their own research to make competent investing decisions.
This is not to say that you will need to research for ten hours a day just to make money. Some concentrated moments of effort, along with the knowledge and analysis, you will get from PennyChase.com; will help you quickly identify which are the best penny stocks. For those of you who are willing to research extensively, there are hundreds of dedicated sites for stock market information to choose from. Our recommendation would be for you to choose a site directed at large cap stocks that also contain penny stock information. That way you can avoid having to filter everything you read from the ‘pump-n-dump' broadcasting and stock touting from the average penny stock site.
If you are not inclined to do very much work, or do not have the time to commit, then listening to the advice of a professional stock picking service becomes even more important. They will show you how to:
• Rank stocks according to their investment potential
• Avoid common mistakes when evaluating penny stocks
• Decipher ‘stock touting' from useful information
As you become more experienced, you will learn that a good penny stock trader can make money on good and bad penny stocks alike, simply by investing at the right time. Ideally you want to accumulate the best penny stock companies at the most advantageous prices. We suggest using fundamental analysis (company information), to discover which are the best penny stock companies. Use technical analysis (stock charting and price movements), to pick the most profitable entry/exit points for your stocks.
5. What are the risks to buying penny stocks?
People will tell you that investing in penny stocks is one of the most risky investments there is, and they would be right to do so. People can, will, and do lose money while penny stock investing. One important thing to consider is that people also lose money in every other type of investment! Penny stocks have gotten a bad reputation in the past from unscrupulous tactics employed by some actors in this arena. There are definitely some pitfalls to look out for and we will cover some of those here.
OTC markets in general can allow for some traders to manipulate stock prices. The most common way to do this is when investors buy stock in large amounts in order to drive up the price, and then they sell after other investors find it attractive. The late arriving investors then have a hard time selling the stock after the hype has diminished. This is called the classic ‘Pump-n-Dump' scenario. A company uses various tactics to artificially inflate a stock price, than they sell all of their shares making a profit for themselves. Unfortunately, everyone else who bought into the stock on its meteoric rise up the charts is now suffering from the inevitable crash in prices. This type of manipulation is carried out by:
• Stock touts- You have seem a lot of them advertise on Penny Stock sites
• Boiler rooms- These people you phone calls to investor lists to get interest and commitments to buy the bogus stocks.
• Hot tip forums- Some investment forums are nothing more than incubators for this type of Hype behavior to draw in the gullible or unsuspecting investor.
• Biased Brokerage Analyst Reports- Company stock information may be skewed depending on whether or not the brokerage is carrying a large inventory of a particular stock.
Please watch out for stock manipulation tactics. The convenience of internet day trading has increased this type of behavior a thousand fold. This is especially true where penny stocks are concerned. Less reputable brokerage firms, individual investors or groups of investors can be notorious for unethical practices that lead investors to make bad investment decisions.
Also, share volumes for penny stock companies are typically low, so any considerable increase of buying or selling for a particular stock can substantially raise or lower its price. The last factor to consider is that it is much more difficult to find information on micro-cap stocks. The information that you do find can often be from a source that is not credible and these companies are again not required to file with the SEC.
In part 2, we will cover topics such as: Penny stock Brokers, Penny stock Selectors and much more! Thanks for reading and be sure to visit: www.Pennychase.com
www.PennyChase.com
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