Here, you will find 10 tips for buying penny stocks. The advice is based on the practical advice that comes from investing in penny stocks for years and striking it big a couple times and the theoretical advice that comes from taking economics courses and studying the trends within the penny stock market. Overall, the vast majority of penny stocks are duds. After all, penny stocks are the cheapest stocks for a reason: penny stocks represent unproven businesses that likely are lacking in many if not most or even all of the fundamental areas that justify placing an investment in those stocks. Often times, penny stocks are the hardest to research and the hardest to justify even caring about. Nonetheless, the attraction to penny stocks is justified. Investing just twenty dollars into a $.02 valued penny stock will provide ample reward even after a mere increase to $.05, yielding a 150 increase in the value of one's initial investment!
So let's get to it. Here is some advice:
1) Begin with a mindset and strategy that expects you will lose. Yes, this is counterintuitive, but also important, because a not-so-careful investor will get stuck buying penny stocks based on the unrealistic expectation that some value will come of the investment. Expect to lose and budget yourself accordingly, and stick with that budget. To minimize your losses in the short- and long-term it is essential that you do not deviate from your budget, never allowing yourself to invest more money into buying penny stocks than what you are willing to lose from the start.
2) Do whatever research you can into the stock and the associated industry. Penny stocks are often difficult to research, because the stocks themselves represent companies that do not have enough capital to establish decent public relations or human resources departments, let alone having enough capital create well-functioning websites. Nonetheless, if you do find information - which you probably can, because there are lots of other penny stock investors out there - you may learn what you need to know to strike it big.
3) Stick with the fundamentals. Penny stocks are notorious failures within the industry, because the fundamentals of the stock are poor. The Price/Earnings Ratio (usually symbolized as P/E) should be low as should the overall amount of accumulated debt, and there should be a clear plan and demonstrated achievement of profitability based on the merit of the company. Tips for buying penny stocks are helpful, but it is useful to know that buying penny stocks comes with the same risks as other stocks and the fundamentals mentioned above are absolutely and always important.
4) Choose an industry you know about. This is easy: if it is a company about designing laces for shoes, and you know nothing about the industry, then you are already behind the competition. Pick a company that has to do with one of your hobbies or interests. You will "read" those companies them better.
5) Take your time before buying a penny stock. There is no rush - more penny stocks will always appear, and you do not have an obligation to dedicate yourself to one particular stock. Patience is critical here.
6) Ruthlessly cut your losses when buying penny stocks. This means that as the value of a stock begins to tank, you want to get out of the investment as fast as possible. Penny stocks can often disappear completely, leaving you blindsided as to where your money went.
7) Be shrewd regarding your winnings as well. If you made some money, grab your initial investment, and play around with the rest if you so please; however, in general, penny stocks can quickly turn into losers, so you might be better off just accepting that you will not hit the jackpot and are instead happy making a few bucks to take your partner out to a nice dinner.
8) Constantly review the status of your penny stock. Some tips for buying penny stockssuggest that you pick a penny stock that allows you to step away from the initial investment, depending on the quality of your initial decision. This is a mistake in my opinion: stay on top of your investment, because a big win can turn into a big loss in just one afternoon.
9) Constantly research your competitors within the industry of the penny stock you are buying. Remember, once you buy stock, you are a partial owner of a company, which means that you also have competitors. More importantly though, you share none of the real legal obligations of owning the company and should be constantly looking for the bigger, better deal. If your competition is doing better than you are, then invest in your competition.
10) Have fun with penny stocks. Investing in penny stocks is like gambling. If you go into a casino with the expectation that you will make money, then life is probably going to get difficult for you, because the casino is built so that the house always wins in the end. With penny stocks, it is not a theoretical casino that is against you, but more the natural laws of probability. So expect to lose-ride the waves of failure as well as success-and you may find your rational, unemotional approach to investing will produce positive outcomes.
Good luck, and I hope you found these 10 tips for buying penny stocks helpful!