Why I Like Penny Stocks
Keywords: penny stocks
Most people consider penny stocks to be a poor investment. I, on the other hand, think that investing in a penny stock before that company becomes profitable company is the best way to invest, because you can make a lot more money with penny stocks than would ever be possible with blue-chip stocks. I will now outline for you what you need to know about penny stocks and how to find the best one in which to invest.
Penny stocks are defined differently depending on who you talk to. Stockbrokers define them as any stock that trades below $5 per share. Regulatory agencies sometimes classify them as a stock with a price below $2. But, generally speaking, a penny stock is any low-priced security that trades on one of two exchanges; the Pink Sheets or the OTC Bulletin Board.
The Pink Sheets are an exchange where most startup companies first get listed. There are no listing requirements to be traded on this exchange. A company does not have to have any sales, nor does it have to reveal how many shares outstanding it has to qualify for the Pink Sheets.
The reason why a company tries to get listed on the Pink Sheets, even though their stock will not go up in price because they have no sales to speak of, is because it gives their company more substance and credibility; it is typically easier to attract additional capital, obtain financing, and execute contracts and agreements if a company is publicly traded, even if it is on the Pink Sheets.
Also, it is easier to get transferred from the Pink Sheets to one of the larger exchanges than it is to go from being a private company to hopping directly on to one of the major exchanges, such as the NASDAQ or NYSE. Companies listed on the Pink Sheets trade as ridiculously low as $0.00001 per share, all the way up to $500 per share and sometimes beyond. Foreign companies often have some of their shares sold in the United States by listing them on the Pink Sheets.
The OTC (Over-The-Counter) Bulletin Board is similar to the Pink Sheets. This exchange consists of relatively young companies either with no sales or a small amount of sales. Companies listed on it are sometimes fully reporting (meaning that they reveal how many shares they have outstanding and what their balance sheet looks like). Often, companies go from the Pink Sheets to the Bulletin Board once they are ready to become fully or semi-reporting.
Most publicly traded companies that are now listed on one of the major exchanges (NASADAQ, AMEX, NYSE), at one time or another, were penny stocks listed on the Pink Sheets or Bulletin Board. Rarely does a company go from being private directly to one of the 3 major exchanges. Google is a rare example of a company that was able to do that, because they were so successful so quickly. But, most companies have to pay their dues and edge their way up from the penny stock exchanges to the bigger ones.
So, investing in penny stocks can be an excellent investment because some of these young companies will one day be worth a fortune. The hard part is finding the right company to invest in, because for every successful startup company, there is also one that fails within the first year or two.
To find the right company, there are a few things you need to look for. Number one, you need to do some research and try to find out how many shares the company has in its float. The float is the number of shares that are currently being traded. Companies listed on the Pink Sheets usually do not officially report this number to the public, but with a little research, you can usually find out. It is usually contained in articles written about the company, or in TV or radio interviews with company officials that are sometimes archived on certain websites.
You can also look for the information on message boards or forums where stock traders chat with each other. Simply do a search on Google and read every article ever written about the company, and you will likely find out about their float. This is important because you do not want to invest in a company that already has something like 500 million shares in its float. Companies with this kind of share count are likely having problems moving forward, so they have issued more and more shares to raise money just to stay alive. You want to look for companies that have approximately 5 to 100 million shares in their float.
Other things that you should look for in a new company are barriers to entry, patents, and consumer demand. Here are the questions you need to ask yourself when analyzing the probability that a company will be successful:
1) Barriers to Entry: Are there are obstacles that will make it difficult for the company to sell its products or services?
2) Patents: Is the product that the company is going to sell patented? A patent will prevent other companies from producing the exact same product.
3) Consumer Demand: Will there be a demand for what the company is selling? Sometimes a company has a great new invention or an exciting technology, but if it is not something practical that consumers are going to want or need, then it does not matter how great it is.
Try to set aside some money for investing in penny stocks and start while you are still young. The earlier you get started, the more money you can make in the long run. Just make sure you do your homework before you invest and you should do extremely well.
..
Jim Pretin is the owner of www.forms4free.com, a service that helps programmers make a free HTML form and download formmail.
Previous Articles Highlighter:
Why You Should Invest In Penny Stocks (1)
Companies listed on the Pink Sheets trade as ridiculously low as $0.00001 per share, all the way up to $500 per share and sometimes beyond. Foreign companies often have some of their shares sold in the United States by listing them on the Pink Sheets.
How To Select Mutual Funds (2)
Just like stocks, mutual funds have a price per share, also known as the Net Asset Value (NAV). The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding.
What Is Breakup Value? (3)
If that happens, it is possible that the only way that you will be able to recoup your investment is when the assets are liquidated so that the bondholders and shareholders can be compensated.
The FOREX Market Is A Goldmine (4)
Stocks are quoted in terms of price per share. Currency exchange prices are listed as either a direct quote or an indirect quote. A direct quote uses the domestic currency as the base and the foreign currency as the quote.
Stock Market Basics (5)
However, full-service brokers do not always provide the best advice. Most of the advice they provide is based on research done by analysts who work for the brokerage house.
Introduction To The Forex Market (6)
Keywords: Forex, foreign currency exchange, currency trading The Foreign Exchange market (Forex) is truly the largest exchange in the world. The amount of dollars traded on the Forex market on a daily basis is in the trillions.
Is Your Stockbroker A Crook? (7)
Use all of the recommendations outlined in this article when evaluating your financial professional and you should do fine. Jim Pretin is the owner of www.forms4free.com, a service that helps programmers make HTML forms.
Understanding Your Insurance Policy (8)
I hope this has helped you to form an understanding of your insurance contract. Even though almost everyone has insurance, most people are not aware of some of the most important facets.
What Mergers Mean For Your Investments (9)
Each share you own will count for one vote. The management of the corporation usually holds most of the shares, so their votes count for the majority, but you should still consider your vote carefully.
Introduction To Day Trading (10)
This is known as momentum trading. Another strategy that day traders often employ is called position trading, where they look for a stock that is likely to experience a significant increase in price over a period of a few days or even a few months.
Introduction To Mutual Funds (11)
Once an obscure investment vehicle, they are now popular with almost all investors. If you ask your average investor whether they have any of their investment dollars allocated to a fund, they will likely answer yes.
Tax Consequences Of Municipal Bonds (12)
I hope this information will help you to evaluate the tax consequences associated with municipal bonds. Ask your broker about each of the situations outlined in this article before you invest.
P/E Or PEG, Which Is Better? (13)
So, investors are willing to pay more than what the company is currently worth because they feel the company will be worth a lot more in the future. So, you should not necessarily run away from a company with a high P/E.
Common Investment Scams (14)
Promises of huge returns from offshore investments are usually totally bogus. Another scam you need to be wary of involves prime banks. Prime banks are the top 50 banks in the world.
Understanding Auto Insurance (15)
Right underneath or in the vicinity of PIP you might see something called Additional PIP. Some states make this available while others do not. Additional PIP provides you with a certain level of income up to a certain maximum amount to help make up for lost wages if you are disabled as a result of an auto accident and unable to work.
Penny Stocks: A Good Investment (16)
Try to set aside some money for investing and start while you are still young. The earlier you begin, the more money you can potentially make down the road.
Understanding A Balance Sheet (17)
Most neophyte investors have no idea how to interpret these statements. A lot of stockbrokers are not too proficient at it either. You do not need to be an expert or a financial analyst to understand and evaluate financial information, but you should know what to look for so you can determine whether you should invest in a certain company.
Introduction To Stocks (18)
Preferred stock has a higher claim on the assets and earnings than common stock. Preferred stock has a dividend that must be paid out before dividends to common stockholders, but preferred stock often has no voting rights attached to it.
How To Get Real Estate Listings Via Real Estate Marketing Articles (19)
Why Real Estate Articles? If you're building a business it's important to remember that building a business is a process, not an event. Consequently, it takes time to make it successful - as measured by the leads, listings that you get and the sales you make.
Holiday Insurance - A Necessity Or A Luxury? You Decide (20)
They only want to think of relaxing on a beach or hiking a mountain or fabulous shopping and the tons of fun they will have while taking a break to rejuvenate their spirits.
Newer Articles Highlighter:
Learn To Avoid Market Timing (1)
According to this technique, shares of stock are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance. The theory is that this will lead to greater returns overall, since smaller numbers of shares will be bought when the cost is high, while larger number of shares will be bought while the cost is low.
How You Can Avoid Market Timing (2)
Most investors end up missing out on a continual rise by waiting for a stock to plummet first, or sell way to early by underestimating how high the price will go.
Penny Stocks Can Be Lucrative (3)
Companies listed on it are sometimes fully reporting (meaning that they reveal how many shares they have outstanding and what their balance sheet looks like). Often, companies go from the Pink Sheets to the Bulletin Board once they are ready to become fully or semi-reporting.
The Truth About Bonds (4)
At each meeting, the Fed renders a decision regarding interest rates. If inflation is rising, the Fed will need to raise interest rates to tighten the money supply. If inflation is moderate or contained, the Fed will likely leave rates unchanged.
Risk Factors Associated With Bond Investing (5)
If you are buying a corporate bond, however, there is always a chance that the issuer could go out of business. In the event of liquidation, bondholders are given priority over stockholders.
Strategies For Investing In Mutual Funds (6)
And some might contain several different types of securities (such as stocks, bonds, etc.) that all fall within the same risk classification (high-risk, medium-risk, low-risk). Just like stocks, mutual funds have a price per share, also known as the Net Asset Value (NAV).
How I Reduce My Investment Risk (7)
With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. As a result, in periods of market declines, the investor contributes more money, while in periods of market climbs, the investor contributes less.
Introduction To Foreign Currency Trading (8)
If you want to begin currency tranding, try to set aside some money and open an account with an online broker. Start slowly, then as you get the hang of it, work your way up to larger trades and higher volume.
Bonds Can Be As Risky As Stocks (9)
Your portfolio should contain a mix of corporate, federal, municipal, and even junk bonds (there is always a default risk associated with junk bonds, but they pay a huge interest rate).
What Is The Purpose Of Umbrella Insurance? (10)
Also, some umbrella policies provide coverage for you if you are sued in connection with any charitable boards or organizations of which you are a member. You may have to contact your insurance company and pay an extra premium for this type of coverage.
Is Bond Investing Totally Safe? (11)
If you are buying a corporate bond, however, there is always a chance that the issuer could go out of business. In the event of liquidation, bondholders are given priority over stockholders.
What You Need To Know About Day Trading (12)
Buying on margin is extremely risky, because the money you lose on trades is still owed the lender. Margin orders are not recommended for inexperienced investors. Another popular trading strategy is called short selling.
Mutual Funds Make It Easy To Diversify (13)
There are also index funds that simply invest in companies that are contained within a certain index, such as the Dow Jones, or the S&P 500. The most important thing to understand when looking for a mutual fund is the cost structure.
Can You Lose Money Investing In Bonds? (14)
However, there are often different classes of bondholders. Senior note holders can often claim against certain kinds of physical collateral in the event of bankruptcy, such as equipment (computers, machines, etc.).
Internet Investment Scams (15)
Sometimes, pump and dumpers will engage in short selling (short selling is perfectly legal; you borrow stock from someone else and immediately sell it, hoping that the price of the stock will go down in the near future so that you can buy it back at a lower price and return it to the lender at a profit).
Is The PEG Ratio Better Than The P/E (16)
It reveals whether the high price of a stock is justified based on whether earnings will grow enough to continue to drive the stock higher. The P/E falls short in this regard because it does not take into account by what percentage earnings are growing each year.
Bonds Are Equally Risky As Stocks (17)
Most bonds pay an interest rate semiannually or annually. The maturity date is the date that the bond will be redeemed by the issuer; simply put, the maturity date is when the company must pay back to you the principal you loaned to them.
Strategies For Combatting Market Timing (18)
Dollar cost averaging (DCA) is an investing technique intended to reduce exposure to risk associated with making a single large purchase. According to this technique, shares of stock are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance.
Managing Your Portfolio Yourself (19)
If a company is not growing its earnings at all, then the stock will not go up. If the earnings are growing significantly each year, then the price of the stock will rise accordingly.
Why Should You Use The PEG Ratio? (20)
So, you should not necessarily run away from a company with a high P/E. In fact, those companies are sometimes the best investments, because if their earnings climb tremendously, then the stock will pay a large dividend in the future (for the uninitiated, dividends are a percentage of the profits of a company that are distributed to its shareholders).