10 Tips for Buying Penny Stocks

10 Tips for Buying Penny Stocks

Wednesday, July 3rd, 2013 - I have had a lot of people ask, “What are your top 10 penny stock tips?”. This advice is based on practical advice that comes from investing in penny stocks for many years and striking it very big a couple of times and the theoretical advice that comes from sitting through many hours of economics courses. Penny stocks are the cheapest for a very good reason, penny stocks represent unproven businesses that are likely lacking in many if not most or even all of the fundamental areas that justifying you placing an investment in these stocks. Many times, penny stocks are very hard to research and very hard to justify even caring about. Nonetheless, the attraction to penny stocks is also justified. Investing only twenty dollars of a $.02 penny stock will provide ample reward even if the price increases a mere $.05, yielding a 150 increase of the value in one’s initial investment. Many of my friends make hundreds of thousands of dollars per day, into the millions trading penny stocks. They are not rocket scientists either!

Now, here are my top 10 tips for penny stock investing:

11)   Begin with the mindset and strategy that you will lose all of your money. Yes, this may be counterintuitive but also very important, because a not-so-careful investor will get stuck buying penny stocks that are based on an unrealistic expectation and that some will value unfold from the investment. Expect to lose and budget yourself accordingly, and never stray from that budget. To cut your losses in the short- and long-term it is vital that you do not deviate from your planned budget, never allowing yourself to invest more money and buy into penny stocks that you are willing to lose from the get-go.

22)   Do as much research as you can into the stock and the associated sector. Penny Stocks can often be difficult to research, because the stocks themselves represent companies that usually do not have enough capital to establish decent public relations or human resource departments, let alone having nearly enough capital to create well-functioning websites. Nonetheless, if you do locate information – which you probably will, because there are many other penny stock investors out there, including penny stock newsletters who can give you the lowdown on what the next biggest penny stock will be.

33)   Stick with the fundamentals. Penny stocks are notorious failures within the industry, inaly because the fundamentals of the stock are weak. The price to earnings ration (P/E) should be low as should the overall amount of debt, and there should be a transparent plan and demonstrated achievement of profitability based on the merit of the penny stock company. Tips like those you would get from a Penny Stock Newsletter can help you quite a lot.

44)   Choose an industry you are familiar with. This is very easy: if it is a company about designing laces for running shoes, and you know absolutely nothing about this industry, then you are already behind the competition. Choose a company that has to do with one of your social interests. You will “understand” those companies much better.

55)   Take your time before buying a penny stock. Remember, there is no rush – more penny stocks will always appear, and you have no obligation to dedicate yourself to any one particular stock. Patience is vital here.

66)   Ruthlessly cut your losses when purchasing penny stocks. This means that as the price of the stock begins to tank, you will want to get out of the investment as quickly as you can. Penny stocks often disappear completely, leaving you with no clue on where your money went.

77)   Be shrewd with the fortunes you will make. If and when you make a fortune, grab your initial investment, and play around with the rest as you wish; however, in general, penny stocks can turn into losers, so you might want to keep your ears and eyes open for the next big penny stock pick.

88)   Constantly review the status of your penny stock.  Some people suggest that you pick a penny stock that allows you to step away from the initial investment, depending on the caliber of your initial decision. In my own opinion, this is a mistake: stay on top of your investment, because a large win can turn into a huge loss in a matter of minutes.

99)   Make sure to constantly research your competitors within the industry of the penny stock you are purchasing. Now remember, once you purchase a stock, you are a partial owner of the company, which means that you probably have many competitiors. More importantly, you share none of the legal obligations of owning the penny stock company and should be seeking the bigger, best deal. If your competition is doing better than you are, then take your money and invest it into your competition.

110)  Have a good time with penny stocks. Investing in penny stocks is similar to gambling. If you can go into a casino with the expectation that you will make money, then your life is going to be quite difficult for you, as the casino is built so that the house always wins in the end. Penny stocks for example, is not a theoretical casino that is against you, but more like natural laws of probability. Expect to lose-ride the waves of failure as well as success. Make safe and smart decisions and your investing will produce healthy outcomes.

I wish you the best of luck and hope that you have found these tips helpful. I actively invest in penny stock picks from the Penny StockHot Newsletter. 9 out of 10 of their last penny stock tips helped me make large gains.