Investing In Penny Stocks

Penny Stocks Investing

The first question is To invest or not invest in penny stocks.

This is largely a personal decision that reflects your risk profile.

If have the capacity as well as the nature to take greater risks, you could be looking at penny stocks.

If your financial position is weak and you need money for food, bills, and support family, it is best for you to stay way and look for other safer investments like insurance and fixed bonds.

Likewise, if you have a lot of money to spare but are generally averse to taking risks, it is better for you to consider other alternatives.

If you are the kind of person, who likes to take risks to increase your returns and can afford to lose some money in market volatility, then penny stocks is for you.

Once you decide to invest in penny stocks, you should take care to ensure that your investment has a reasonable chance of giving you good returns.

For this purpose, you should consider factors such as the reputation of the company and its promoters, past history if any is available, and also assess the fundamentals.

Finance Managers and accountants use the term fundamentals to refer to the intrinsic value of a company.

The prices quoted in the share market are the result of many factors such as market sentiment.

The fundamentals of the company, on the other hand, will show you what the company is worth.

This consists in understanding the real value in terms of the assets and the revenues of the company.

If you invest in a company with good fundamentals, the chances of your losing will be greatly minimized.

Use the methods of valuation of shares discussed in the earlier article for this purpose.

Another golden rule that is applicable to all shares, but particularly true in the case of penny stocks is the old saying on Never Put All Your Eggs In One Basket.

This is true even if you have inside information.

Inside information refers to private information that you possess about a company that is likely to affect its share value in the short run to a major extent.

For example, if you knew that company A is likely to be taken over by a major conglomerate offering a high price to the existing stockholders, and if this is not yet known to the public, you have inside information.

You have information that makes you pretty sure that the share price will rise in the market substantially once this fact becomes known.

So it is usually safe to act on inside information, assuming of course that it is reliable and true.

However, even in such cases you should avoid over exposing yourself, particularly in the case of penny stocks.

Plans simply fail to materialize, for example, in which case you may be left holding a stock that has little value.

Remember that there is many a slip between the cup and the lip.

The next important thing to keep in mind while considering penny stocks is that you may not be able to sell them quickly.

Particularly if you have a large quantity.

So, if short-term liquidity is a concern for you, you should avoid investing in penny stocks.

It is much easier to sell stocks traded on a regular stock exchange and ones that are well known and frequently traded.

To conclude, remember that penny stocks carry greater risks and less liquidity.

Avoid over exposure.

Invest after investigating.

If you follow these rules, are careful, and lucky, you may make a good profit from penny stocks.

Review Of Penny Stock Prophets

Created by James Connelly, Penny Stock Prophet is an online learning program in which the creator identifies penny stocks that he claims should increase their value.

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