Pros And Cons Of Buying Penny Stocks
Buying penny stocks can be a huge money maker if you know what you are doing. Penny stocks are stocks that are normally under five dollars. Now of course, most big companies stocks do not start that low, so the companies are relatively unknown and obscure. The company needs to be more speculative in nature according to the SEC.
However, if any of these companies hit it big, their shares go up a ton and that makes the original investors big dollars. The term return of investment is a word tossed around used to show how much you get on your investment. The best performing stocks in the past decade have been penny stocks. Penny stocks start low and when they get to be a few dollars per share, that is huge profits since the percentages are so high (some into the thousands time the starting price).
Cheap stocks provide for large potentials but large losses since there is a ton of risk. Anyone can invest in a safe company like a Microsoft or Google by buy stocks online, but those are expensive and barely go up, but are steady. Penny stocks are one of the easiest ways to lose money. Everybody is looking for the best penny stock investment hoping to make money. You run into a ton of pump and dump techniques, where someone boasts about a stock, waits for an increase in price, and then sells all of theirs. Penny stocks are actually not that liquid and are very tough to gauge.
The prices of the stocks are almost actually never affected by what the company does, but what the market does. There are some penny stocks that can do well, but extreme research is needed. One must look at the financials of a given company to really see if the company has profit potential. One of the biggest things to look for is liquidity and assets, meaning having lots of cash, with almost no debts. Finding this is just about as rare as finding a penny stock that hits it big. Anyone can invest in penny stocks, but the risk is so great, it really is not even worth it. You may even have a better shot winning the lotto.
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Big Money In Buying Penny Stocks
You can make big money buying penny stocks. I’m sure you’ve heard that many times from different types of people and websites. There is truth behind that statement, but that’s just half it. I’ve made more money percentage wise with penny stocks compared with mid-cap and large-cap higher price shares. That doesn’t mean that I made more money with them though.
When you come right down to it, there’s a law of averages that you need to think about when making a penny stock investment.
Just recently I bought Sirius/XM Satellite radio (NASDAQ: SIRI), for $0.05 per share and took it up to $.50 per share in just one month. That is a a gain of 900%. Those types of percentage gains can only be done with penny stocks. The reason I said that I haven’t made as much money with these type of stocks is because a year earlier I bought into a stock at $2.94 (cost average) and watch it drop down to below $2.00 in no time at all. I had more of a stake in that company than I did with the more recent one.
I’ve said it before and I’ll say it again, you need to look hard at any company that are thinking of investing or trading in. Look at their balance sheet, their debt-to-earnings ratio, listen in on the conference calls when and if they’re available. If you don’t and end up losing a big chunk of your investments, you have no one else to blame.
They are plenty of people out there that say that they can “show” you the way to picking penny stocks, but the truth of the matter is that you pick penny stocks the same way you pick any publicly traded stock, you do your research into the company first. If you can’t do that, then you shouldn’t be buying stocks in the first place.
I’ve been watching Sirius for quite some time and the reason I got into the company was because I knew that the company would find the financing that they needed. I also know that this company isn’t going anywhere anytime soon.
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A List Of Penny Stocks
Buying penny stocks seem to be easy to do and in a sense it is, but the hard part is trying to pick the right ones to make a profit. There are many sites out there in the internet world that offer you a list of penny stocks and all you have to do is give them your e-mail.
If you really think about it for a minute, why is someone that you never met and most likely never will, want to give you a list of penny stocks that he recommends for no charge? What a great guy that he would want to help total strangers make money in the stock market and do it at no cost to you.
Because in a sales pitch like stock trading you have to give away something to get the person to see if you know what you’re talking about. Trading in penny stocks is big money for brokers and the houses they work for.Why is it that penny stocks seem to be a big thing within the stock market? Well actually they’re not as big as you may think in regards to owning the shares. The smart money ( the pros of Wall Street) don’t buy and sell penny stocks, there’s too much risk involved. Instead if they want to get into a company that has it’s shares at penny stock levels, they’ll actually loan them the money with interest.
They may seem like a big thing to you and others that you may speak with, but not when it comes to the smart money on Wall Street. It’s the amateur trader and the day trader that wants to trade in penny stocks on a regular basis. The reason for that is that they have the reputation of having big percentage gains (or losses) in any given day. You can make (or lose) a load boat load of money real quick.
If you’re looking to get a list of penny stocks and plan on buying and selling them, be careful, it can cost a lot more than just a few pennies.
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