Investing in penny stocks could be rewarding but the risks are enormous. Penny stocks are shares that are being sold by a small company and whose price is normally less than $5. These stocks are less liquid and could easy be manipulated by the company or big players. Penny stocks are prone to faulty press releases and erroneous news about its company in order to hype up and increase its value.
Despite the criticisms that they get, penny stocks can give you significant gains. In fact, it can outperform several companies that are listed in indices and blue chips. Many companies have shown great potential. As a penny stock investor, these are the stocks that you should be looking for. Forget about the hype but rather learn how to time your entry and exit and learn how to pick the right companies. Here are some tips on how to start investing in penny stocks and how to find the right stocks to pick.
1.) Find a broker. Every company that goes public is listed in the stock market. Though they doesn’t belong to the index, penny stocks are found in the stock market. Stock brokers have direct link to the stock market and would normally provide you with the list of all companies that went public, both in the indices and not. Find a reputable broker with a proven track record. These brokers can provide you with data of the different companies and could even give you advice on what stocks to pick.
2.) Determine your investment timetable. Investments are intended for long-term in contrary to trading. Some companies show great potential in time. To illustrate this further, take the case of Berkshire Hathaway. Though it is not considered as a penny stock when Warren Buffet bought it in 1962, its value significantly rose making Buffet one of the richest men in the world. Berkshire Hathaway’s price was at $11.5 and $11.375 in 1962 but its class A shares sold at $90,000 in 2010. Most stocks are traded way below their real values. Some penny stocks have great potential in them and it is a matter of finding them and waiting for their true value to come out.
3.) Read company profiles and financial statements. The stock market provides data for traders and investors. You can find all the valuable information that you need from the stock exchange, your broker, the company’s website, or other sites as well. It is important to also know the future plans of the company that you are targeting and as much as possible, always get third party sources rather than getting it straight from the company. Companies are always biased towards their plans thus it can’t give you the clear view of what you might get in to.
4.) Learn technical analysis. Technical analysis, in the strictest sense, is the market’s response to the fundamentals. However, because of the lack of sufficient data that some companies issuing penny stocks have, analyzing and understanding the market sentiment towards a particular stock might be your best bet. There is always a reason why a price goes up and down. It may be triggered because of hype or because of solid company fundamentals. The market moves in patterns and understanding such patterns and making the right decisions can make you successful.
5.) Pick the best stock. With everything on the table already, pick the stocks that offers the greatest potential. These stocks must be reliable, reputable, and have the biggest possibility of growth. Picking the best stock is never easy. You may have overlooked some things or you may get too emotionally attached to a particular stock. Make decisions through the data that you have gathered and if possible, seek help from professionals and experienced individuals. As a beginner, you are highly susceptible in making mistakes and lose a lot of money with penny stocks.
6.) Never let your emotions overrule you. The stock market is very volatile. The values of stocks change so fast, it is very unpredictable. That makes time very important in investing. As an investor, you don’t care about the daily fluctuations and short term movement of the market. All you care is the long term growth of the company and your investments. Your emotions may result to doubts after you see your investment stumble for a few days. If you get emotionally affected, get back to your data and remind yourself about the potential of your investments.
Getting started is fairly easy in penny stock investing. Picking the right stocks and dealing with your emotions are the challenging part. Both can be controlled by providing yourself with the sufficient and correct data and base your decisions with facts and figures, not emotions. Find as many sources as possible and be keen in trimming down your choices. Remember that the potential is great as well as the risk so for you to succeed, the effort and sacrifice must be great as well.