Penny Stocks Investing - 5 Top Tips on How To Spend Small and Profit Loads

By: Duncan Roberts
Submitted: 2007-01-17 16:16:37
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Penny Stocks.

Even the name of them hints at the promise of something for nothing!

Spend a Penny - get back one, two, ten dollars!!

Penny Stocks investing is one place and time where you MUST leave your emotions at the door and become utterly 'Spock' like.

Spock like?

Yup - use pure logic! No emotions.

See, you need to always keep in mind that these penny stocks are companies starting out in the business world, not the big dogs trying to make another penny. They aren’t necessarily bad investments, but they aren’t good enough to get an investment banker’s money in an IPO.

Be realistic about penny stocks and realize that you won’t find the next tremendously big thing here, but you can find some exciting opportunities with good work.

So what to look for, what are the signs that would indicate a Penny Stock investment worth considering?

• A consistently high volume of shares that are actually being traded is one thing that you should definitely look for in a penny stock investment. But be careful here, because it's possible to skew the results of average volume trading, go with the consistent volume to get a good idea of what the stock will provide as an acceptable rate of return. Also, make sure the liquidity of the penny stock is something you make a note to look at, how many people are selling and buying everyday? Don’t end up being left with “dead money”, effectively money that you can only release by selling the penny stock at the bid (dumping, in other words) and losing money because the price is diving.

• The company’s profitability is also very important. If it is a start up company that is running a loss then see why they are losing money. It's not at all uncommon for this to happen but you need to assure yourself that they can manage it and turn it around or will they continue to struggle and lose money for your future. If they grow then your investment grows. Try and make time to do some in depth research to find the right companies and find the best return you can get for your dollar. The more diligence you put in at the beginning - the more profit you look to take out at the end.

• Understand the danger of penny stocks, the speed within which they can and normally do rise and fall in value. Always create an exit plan on any investment (i.e. knowledge of "at what price you sell the stock regardless"), have a solid plan on where to start and make sure it includes where exactly to finish. If you buy a stock and make a 20% return on investment then you are doing extremely well. Do it right five times and you are in the money, wrong five times and you may very well be done. Listen to what the market is telling you, if it is time to get out, then get out. (No emotions, remember Spock!!)

• Place some confidence in how you found out about the stock only if that source warrants your confidence in the first place. If it was in a mailing list then who, where, and when did you get it - and more importantly, WHY?? What's the connection of you and the sender / recommending party. Nothing? Bin it! trust me - gifts of that nature don't happen, ever!

I get an average of 10 emails a day with "stock tips" I'd be a fool to ignore! So I do, 'cos I'm a fool.

Oh looky, super hot tip number one has just plummeted, crashed and burned. Shucks, and I was just about to invest in it - NOT!!

Some are real and reliable updates and advices whilst others (most others) will attempt to "pump and dump" to make money off of the innocent.

Don’t be caught in the middle of someone pumping the stock, and then dumping its shares to unwitting subscribers. Subscribe to a newsletter and then track their investment. If they are legitimately making money then they are probably safe, if not, then it is time for you to move on to the next possibility.

• Don’t overextend yourself on penny stocks alone, no more than one fifth of your investment should be in penny stocks at a given time. (Pssst. Big Tip Here - Don't over extend yourself on ANY investments - penny or otherwise, always invest within your ancillary income, never touch your cost of living means and NEVER, EVER UNDER ANY CIRCUMSTANCE BORROW TO INVEST.)

Follow these rules and you will be in great shape!

Duncan Roberts measures his penny stocks trading carefully as he's seen too many investors fail and diving in to deep. Learn more tips to stay out of trouble when penny stock investing at his site http://www.theadvicecentre.info/investing/

Article source: Expert Articles

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