The Nature of Penny Stocks
For anyone new to investing in penny stocks, you should first be made aware of the differences between these micro-cap stocks and the more conventional blue-chip and mid-cap investments. Unlike buying shares in a large, stable company like Ford or IBM, you are dealing with speculative investments.
Penny stocks literally trade for pennies per share, or for as much as a couple of dollars. The beauty of penny stocks, of course, is that sometimes they 'grow up' and become mid-cap stocks, multiplying in value hundreds of times over and making many people very wealthy.
With penny stocks, also called micro-caps or juniors, you will see much greater price volatility, and thus greater and quicker gains and losses in asset values. It is precisely this volatility which draws investors to the junior markets, as one good pick could make you hundreds of times what you could ever make on the larger markets.
Of course, there is more risk than buying bonds, blue chips or defensive stocks - but this added risk is tempered with the possibility of making the big gains.
Most penny stocks, but not all, are resource or technology companies who initially sold shares in an effort to raise money for exploration or product development programs. Many of the companies have large debt loads and are not necessarily making more money than they are losing.
However, it is the potential of a major, or even minor success in their quest that often incites dramatic price climbs, and this is where their value lies.
Profit Potential
Modern Strategies Inc. owner of http://www.pennystockinsider.com, has been in the business of researching penny stocks for many years, and has become effective at uncovering the best small cap investment opportunities and the most rewarding profit situations in the penny stock markets.
There are several ways to profit from penny stock investments. Modern Strategies Inc. has uncovered the most highly rewarding investment situations.
Promotional Stocks - These issues may or may not have much actual value. Promoters generate interest in these types of stocks in an attempt to drive share prices higher. The promoters own great amounts of shares and so they make more money the higher the share price travels. Eventually, they sell their holdings into the promotion and generate great personal profit. Then they move on to the next project, leaving the original stock and all its investors behind. Without the work of the promoter, the promotional issue soon comes crashing down.
These are the type of stock investor hear horror stories about, because many people often lose a good deal of money when they are naive about promotional ploys. However, getting in on a promotional stock early in its life cycle, and keeping an eye on the actions of the promoter can be very, very rewarding. It's like having a full time stock promoter doing everything in his power to get the share prices of the stocks you own to go through the roof, and investors who get in early can go along for the ride!
Technical Precursors - Often technical analysis can reveal patterns in the trading cycles of penny stocks. Sometimes these patterns illustrate excellent buying opportunities, where the underlying stock has a high probability of moving up strongly, and only a low probability of declining in value.
In addition, there are sometimes situations where several positive technical indicators combine at once to reveal that an issue is very likely to increase strongly in price over a short time frame, indicating that the particular issue is has excellent investment potential.
Fundamental Strength - Fundamentals involve such criteria as earnings, debt load, assets, and many others. It was long thought that earnings were the major driving force behind share prices, but Modern Strategies Inc. has since disproved this theory as it applies to penny stock companies. Instead, uncovering the best medium to long term investment opportunities must be done through exhaustive analysis of company financial statements. Investors should get involved with the companies that are making the most money, have the most effective management, and have improving trends in all factors of their operations. As well, industry comparisons and the examination of key financial ratios present clues as to which companies are destined for higher share prices.
Proper fundamental analysis of penny stock companies will generally reveal that there are about 2 or 3 superior investment opportunities out of every 100 companies examined. These 2 or 3 excellent corporations often represent better investments than 90% of stocks on the large-cap markets like the NYSE.
Undervalued Situations - Sometimes companies see their share price slide dramatically. There are occasions where this decrease in price has very little to do with the underlying fundamentals, and more to do with factors such as overall market weakness, interest rate increases, or others.
Opportunity exists in such situations because the shares are often 'unfairly valued' and a return to more realistic prices is inevitable. There are often cases where companies have more cash on hand per share than their share price, or have price to earnings ratios as low as 5.0. Although there is much more to uncovering the best undervalued situations, this is the basis behind the concept.
Minimized Downside - Often the combination of technical analysis and undervalued situations can reveal penny stock companies that have tremendous upside potential, and have a very low probability of declining in value to any significant degree.
These type of investments are excellent choices for penny stock investors that are less risk adverse.
Special Notes About Penny Stock Companies
Penny stock companies change their names more commonly than other publicly traded companies, and are also subject to more stock-swaps and consolidations. In any of these events, your shares in your account will be automatically replaced with the appropriate stock by your broker and notice will be delivered to you.
For example, if you owned 5000 shares of EXO and for every 5 shares you were to receive 2 shares of LOR, you would find your account holdings re-adjusted to reflect 2000 LOR which can be traded as normal. You will no longer have the 5000 EXO.
On rare occasions, a penny stock company can become delisted. This means that the shares will no longer trade on the exchange, and if the company does not get listed on another exchange or re-instated at a future date, you may be subject to a loss of capital equal to 100% of the total investment. However, this is a very rare occurrence, and there are simple ways to protect yourself against it which are periodically discussed in Modern Strategies Inc. publications. Delisting generally becomes a greater concern for investors who intend to use a long-term (several years) buy and hold strategy with penny stocks.
Peter Leeds, one of North America's leading Investment Coaches, is a self-made millionaire who has created his fortunes on the stock markets. He has also empowered thousands of individuals to do the same. His personal success and incredible ability to consistently pick money-making stocks has earned him a loyal following of successful investors and has generated significant attention from the financial world.
I love to collect quotes as they concisely promote a... Read More
Let's see, he had some oats, fresh alfalfa and his... Read More
If you know next to nothing, how do you go... Read More
Pre-1933 Gold Outperforms Today's Gold Bullion...Since 1970, an investment strategy... Read More
Step 1: Spend less than you earnPerhaps the simplest financial... Read More
In this "special report", I want to pose a few... Read More
Investors are still too slowly realizing what the academics have... Read More
If there were one piece of advice that an investor... Read More
Today, I am going to start a multi-part series about... Read More
Several days ago, the Commerce Department reported that May's factory... Read More
One among many ways you lose money in non-indexed mutual... Read More
In this day and age of online brokers for virtually... Read More
One of the greatest preconstruction investing issues that I hear... Read More
As a trader, one of the key things that I... Read More
One of the fundamental principles of finance is the concept... Read More
College Savings Plans ? are they the best choice for... Read More
You have rowed a boat at some time haven't you?... Read More
One of the leading traders on Chicago Mercantile Exchange, because... Read More
Even though inflation has been relatively quiet in the U.S.... Read More
What is an Angel Investor? An Angel is usually a... Read More
A strategic question. Why indeed?1. A penny share would usually... Read More
You know all the articles you read about annuities that... Read More
A Business Plan, as all good entrepreneurs starting out in... Read More
I submit that the successful day trader would profit well... Read More
My paternal grandparents were born near Lake Como, Italy. My... Read More
Yes, it's the time we've all been waiting for?tax season!... Read More
This article attempts to help give the investor a broader... Read More
"To drift is to be in hell, to be in... Read More
More and more workers are leaving their jobs and taking... Read More
If it seems... Read More
In the last two decades, even though gold prices have... Read More
Based on consistent results I think Buy & Hold should... Read More
With visions of an ATM in every neighborhood in China,... Read More
Suggesting the use of a franchise business as a vehicle... Read More
Many people buy annuities according to their agent's recommendations. However,... Read More
For instance, if the market moves up in the first... Read More
There are many steps in calculating the fair value of... Read More
Okay, so I can tell you I have sat in... Read More
Are you as good an investor as you think? Do... Read More
Ever since the turn of the century, world stock markets... Read More
There is a lot to know about investing. It all... Read More
Several days ago, the Commerce Department reported that May's factory... Read More
Mutual Funds are considered to be one of the best... Read More
In part 1 of this article I started to look... Read More
One of the most common mistakes made by inexperienced investors... Read More
Arthur Levitt, during his tenure at the SEC, experienced many... Read More
Here are some useful tips on investing. When you make... Read More
As I take my leisurely walk with my dog through... Read More
In many respects, Singapore is the Switzerland of Asia.Begun in... Read More
When you start your program to purchase your "ideal" company,... Read More
The practice of economy, directed toward a retirement investment plan... Read More
The economic data reported Fri showed continued above trend growth... Read More
Need some insight on what you should really be striving... Read More
We've helped a number of clients develop business plans and... Read More
In the last two decades, even though gold prices have... Read More
I said last week that money doesn't generally buy happiness,... Read More
If you know next to nothing, how do you go... Read More
Sometimes you spend sleepless nights worrying about which stocks to... Read More
There maybe several reasons why you to want to invest... Read More
Do you ever wonder exactly what's going on in the... Read More
How do you make your investment decisions and where do... Read More
While a U.S. Representative to the Asian Development Bank Executive... Read More
A trading system consists of a set of rules for... Read More
Grading coinsThe condition of a coin is commonly summarized by... Read More
A barrel of oil bounced to over $60 Thu, which... Read More
In the past most people never retired. They died. The... Read More
Investing |