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A Reverse Approach To Choose The Right Penny Stocks – Part II

Today, I’ve done a lot of review on my previous topic, how to lose money with penny stocks. To recap, my hypothesis is that if I learn what NOT to do first, that is, learn how people lose money with penny stocks, I will have that firmly imprinted in my mind as I go forward with actually learning what penny stocks to buy.

First and foremost, there really isn’t a lot of information out there in terms of how people lose money at penny stocks. Granted, there are a lot of cautionary tales of woe, with folks losing a fair amount of money, but when it comes down to the details of how and why, the information is lacking.

The few sites I was able to find, along with a somewhat useful YouTube video, are linked as you read through this post. Here’s what I learned from my research:

Penny stock scams are abundant. You need to be very cautious when choosing what penny stocks to buy!

A very reliable site, investopedia, provided a rather basic article with some insights on penny stocks, including a bit of useful information on scams that pervade penny stocks. The first of these is the biased recommendation. It seems that struggling companies will pay people to recommend a certain stock (i.e. their stock!) which is clearly a biased recommendation and a conflict of interest. A second scam is the struggling company will sell their stock to an offshore broker (which exempts the company from having to register their stock with the SEC), and then the offshore broker calls potential investors and uses high-pressure tactics, akin to a used car salesman’s techniques, to pressure folks into buying the stock.

Ugh! No wonder penny stocks have a bad name.

Trendshare.org also has an article with a bit of information regarding people losing money with penny stocks. They highlight the “pump and dump” scam, which I’ve at least seen before. As the article defines it, essentially in a pump and dump scam, a worthless stock is “pumped up” through recommendations, and utilizing the group psychology technique of “not losing out”. This “not losing out” idea holds that people tend to follow the herd and people don’t want to lose out on a potential opportunity. Then once the stock price rises, the person at the source (the “pumper”?) sells all of his shares at a profit, leaving these other folks holding a really worthless stock. The article also notes the ubiquitous penny stock newsletters, which promise the “hot stock tip” or the “insider tip”, which usually is a crappy recommendation.

The most useful article, however, comes from Michaelsincere.com, which is an interview with a penny stock trader (and author) Timothy Sykes. Tons of useful information in this article on why people lose money with penny stocks. Here’s the ways people lose money:

Relying on penny stock newsletters, as I noted above. Sykes notes that the fine print of these newsletters usually reveals an SEC-mandated disclaimer that specifies the conflict of interest! Amazingly dishonest!Being greedy. This is apparent in any investment, in that if you see a 10% or 20% return, you immediately want a 30% or 40% or greater return, and will hold onto a stock longer than you should, instead of exiting, taking profits, and looking for the next penny stock to buy. You have to not be enamored with a stock and look at it 100% objectively and go with your hard analysis, not your emotions. Especially difficult can be the idea that “I failed because I lost money on this stock”. That thought needs to be stricken from your consciousness as each loss is not failure, but an opportunity to learn. I’ve been guilty of this before, so this is something I’m going to have to watch out for myself.Listening to information from the companies themselves. Since penny stocks don’t have to adhere to the same regulations as larger-cap companies who are listed on the major stock exchanges, there’s ample opportunity for companies to outright lie and manipulate their data. Easy enough to avoid.Trading stocks that have limited volume. Let’s say you own 2,000 shares of a stock that has a share price of 10 cents, for a total investment of $200, and the average volume of shares traded is 10,000 shares per day. If that stock drops in price by a cent or two, that’s a huge move, and now you want to sell your shares quickly. But, now you own 20% of the average trading volume. How are you going to be able to find enough people to buy your 2,000 shares of a stock that’s dropped in price by 10% or 20%? You’re not. So, simply avoid trading more than 10% of a stock’s daily volume and trade stocks that have at least 100,000 shares per day traded. Easy enough

The last resource I’m listing here is a video from pennychase.com which lists many of the same things I mentioned above, but is somewhat interesting to listen to. Remember, however, that this is a video made to sell Penny Chase’s service, so there’s a sales pitch starting at the 3:30 mark of the video. I certainly don’t endorse their service nor do I plan to use them for their service, but the information in the first 3:30 of the video I think is useful enough to listen to.

So, that’s it for now. I’m going to distil this all down into a quick reference “How To Lose Money” Post in the Resources page. I plan to have this printed out and available whenever I’m going to actually choose what penny stocks to buy so that I have that idea of what NOT TO DO right at the forefront.

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Trade in Forex – Earn Big Money Quickly

The dealing and trading of cash between two nations that have different currencies are known as FOREX market or some people simply call this as FX market. This type of market is frequently misconstrued as the stock market. However, FX market basically deals and trades money. The difference between stock market and FOREX market is the extensive trading that takes place on the foreign exchange industry.

The amount of money that passes through the FX market can be phenomenal. In fact, it easily reaches to trillion each day. The amount of cash is far larger than the stock market.

The currencies that are sold, purchased and traded across the FX market can be efficiently liquidated. This is the biggest advantage to investors who are attempting to deal between two currencies in different nations. The reality is, it can be done at a very fast pace.

The Difference Between Stock And FOREX Market

The main difference between stock market and the FOREX market is the fact that the FX market is known globally. The stock market on the other hand generally deals from within a country and sells business and products native to that location.

Unending Trading System

International money transfers consistently take place all over the world. Therefore, the market has to be open for business all year round. The countries dealing in FX trading, selling and buying are obviously going to be situated in their respective time zones. In that case, when one FOREX market is closing, another is opening for business. This creates an infinite progress of global trading.

As what you can see, trading on foreign stock exchanges is not that simple. You must learn the basics of trading first. If you are only interested in penny stocks then you can use program like Microcap Millionaires, to learn all the basics.

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Buying The Right Penny Stocks. Researching Before You Buy

A good penny stock is one that has either the potential to increase in price or offers a consistent dividend income. This is the same for penny stocks or regular stocks. There are several ways the average person can gauge this information about a stock. First and foremost, check its history. What has the price done in the last year? The last five-ten years? Many stocks show a large price hike in their initial years, and then a large drop. The important thing to ascertain is: has the price remained stable? If it offers a dividend, then its stability over several years is a good sign.

In order to determine if a stock is a dividend producing stock, check its statistics. Every stock buying website has their statistics set up in their own way, but they will all have a dividend yield percentage. If the dividend percentage is 0.0% then this stock does not yield dividends. Also, the search engine on each website should have the option to sort by dividend stocks. It is important to pay attention to the math when seeking this type of stock: A seventy percent dividend yield may seem great. However, fifty percent of a $5.00 stock is $2.50 and seventy percent of $3.00 stock is $2.10 so clearly the stock price hugely impacts dividend yield.

Other ways you can determine how a stock might do is to research the company itself. Read any articles you can find about the company in the news. Read the bio of the company on online. A tip here is that if you find during your research a company is about to release a new product into the market or hopes to within the next year, then it has the possibility of a stock price increase.

Financial statements and price to earnings ratios are also available online and should be taken a look at. Granted, information with penny stocks can be really difficult to come by, but if its available, read it! Compare the stocks to other stocks of the same type, looking in particular for red flags like a bunch of debt. Also, the price to earnings (P-E) ratio may indicate an important difference as well. A stock with a P-E ratio higher than other stocks in the same market most likely will drop before long.

Another technique which may be helpful is to track a stock of interest prior to purchasing. Setting up alerts on any articles related to the company will keep you informed on the stability or the potential of their stock. Does the price stay stable over a period of time, or is it jumping significantly from day to day, week to week? If a stable stock which gradually increases in value over time is the goal, then stick with those that don’t jump in price. That’s not always the case in the penny stock world, from what I’ve heard, but I’m going to keep that in the back of my mind.

Use the tools available online to gain as much information as possible. Taking extra time to research before buying can make a great difference in the success of penny stock purchasing. Although information can be scarce, trying to find good penny stocks seems to involve choosing those with as much stability and least debt as possible and paying close attention to dividend yield, stock price, and the history of the company I’m investing in.

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How To Get Sexy Profits From “Wall Street Wallflowers”

Wall street wallflowers are stocks that are largely ignored by most professional stock analysts. These are usually companies that have no “sex appeal” and whose market cap is small. The majority of these companies trade as “penny stocks” – stocks that trade under $5 per share.

For example, a company that specializes in selling fluorescent lighting for government buildings and schools and has a market cap of less than 10 million could be considered a “wallflower stock.” There’s no new technology here, no new patent, and nothing that’s going to captivate the imagination of the news media and most investors. In fact, it’s rather boring mundane stuff.But guess what? There’s often a real need in our society for boring and mundane products and services. Read more