Would you like to have some fun in the stock market without risking huge amounts of money? Today when the average American house costs $184,300 and the average new car $30,000, it’s still possible to buy penny stocks for a few dollars a share. Penny stocks don’t really sell for a penny; the term refers to any stock that trades at $5.00 or less. Besides low cost, there’s a good reason to invest in newer, entrepreneurial stock offerings: many of the products or services they represent are cutting-edge, the wave of the future. Not all of them will succeed – in fact most of them won’t – but the ones that do could be tomorrow’s WalMarts or McDonald’s or Amazons. While a good return on more conservative and established stocks is 8% per year, with penny stocks you can see 100% returns in a week. Believe it or not, financial guru Jordan Shaw makes over $500 a day trading penny stocks alone.
You want in? Here are a few tips to get you started in this risky but often lucrative market.
Separate the sheep from the goats.
The sheep, in this instance, are stocks traded on the OTC Bulletin Board Exchange, NYSE, NASDAQ, and NYSE Amex. The goats – the ones to avoid – are the ones traded on so-called “pink sheets.” For one thing, it’s much harder to get background information on a pink sheet stock; the stocks traded on more reputable exchanges reliably file with the Securities and Exchange Commission, so you have at least some idea of what you’re buying.
Do your homework.
Because penny stocks are so inexpensive, many people just buy them willy-nilly without too much thought or research. This is silly; if you had a handful of quarters, would you run around and stuff them in every vending machine you see? Figure out if the product in which you’d like to invest is worth your money. Is it a promising new technology? Does it fill a real need? Is the company managed well? Is it poised for growth? Learn everything you can about the company before you invest a single dime.
A time to get in, a time to get out….
Most experts advocate planning an entrance and an exit strategy for every stock you buy. For example, say you want to invest $100 in Consolidated Turkey Feathers. Before you even plunk down your initial investment, decide on a target price – or a series of target prices — at which you’ll sell some of your stock and walk away. A good book on investing can give you invaluable advice on this.
The stock market can be a nice nest egg.
“Oh, no,” you’re thinking. “The stock market is too unpredictable. With my luck, my life savings could be gone in an instant!” Again, not true, because you’re smart — and smart people don’t invest every cent they have in the stock market. Once you’ve made your initial purchase, only use the profits from your investments to fund further trading. That way, if you choose terrible stocks or the whole market tanks, you really haven’t lost anything except time and effort. Look at it this way – when your stock is doing badly, it’s just virtual money. When it’s holding its own or doing well, it’s an asset.
Investing in penny stocks forces you to look at the relationship between your money and the future, and that’s never a bad thing. Why not give penny stocks a try?