When I start looking into a small-cap company, especially one whose stock price is less than a $1.00, the research that I need to do is much more involved because the lack of analysts and other resources I would use to get my information. a few times I’ve called the company to talk with the the CEO (Chief Executive Officer) or the CFO (Chief Financial Officer) to get a feel of the management and their confidence in the direction of the company. You would be surprised how much they’re willing to talk to potential investors. Go visit their website to get their latest financial report. You’ll also need to look at their competitors within their industry as well as their potential market share.

If you’re wondering about how to buy penny stocks where you can get rich overnight, be advise that those stories you hear are mostly from these “pump-and-dump” website or brokers. Yes you can make good money if you’re quick enough to buy and sell stock (in most cases) within the same day. I’ve seen too many times from beginners investing in penny stocks see the gains, but wait too long before the Profit-takers have already sold out their position. If you are someone who can not be around the computer all day while the stock market is opened, then you shouldn’t be thinking in this type of stock trading strategy.

Another thing you have to keep in mind is not to put too much capital into a penny stock that you are not prepared to lose. So often investors will lose 75% or more of their investment in a penny stock. As with any investment strategy, you should never put all of your capital into any one sector or stock. All stocks rise and fall in value and when it comes to penny stocks, their price swings are drastic.

If you’re asking about how to buy penny stocks as in, Where do you find a penny stock broker? There are many different online penny stock brokers that you can use. These days it’s a lot easier to trade online than ever before. TD Ameritrade, Zecco, and Scottrade are just a few you can use, but make sure you read their list of fees they charge for stocks that trade for under $1.00. There are some that will have extra fees to when trading penny stocks. I wrote a earlier post about the difference between some of your choices.

I believe most people know what stocks are. A stock’s price multiplied by the amount of outstanding shares represents the value of the company. A company’s worth can be characterized by total assets minus all its obligations. Stocks may be more or less profitable, according to the company’s efficiency and ability to return to profit for every dollar that was invested in it.

Publicly traded companies are traded on three major exchanges like the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) or American Stock Exchange (AMEX). Even though quite few penny stocks are traded on these exchanges, most of them are traded on the OTC:BB (over the counter bulletin board, also known as the pink sheets.

Potential to make incredible amounts of money in a relatively short period of time, indeed, is one of the most attractive factors that attract investors to penny stocks. Because decreased listings, any change in prices can lead to one hundred times the initial investment. Some people can become rich overnight if they make the right choices.

Moreover, there is also the possibility of losing money. Penny stocks can also go down 50% or more in just one day of trading. Which is why you need to do even more research onto the company before making any investment. Unlike the big stock exchanges, stocks traded on the OTC:BB don’t require to do the same types of quarterly reports as the others. Another issue to be aware of is the fact that most penny stocks don’t have any analysts following the company to really get an idea of what they are up to. Of course you can call the company’s public relation department to get some answers, but then again you have to remember that the person you’re talking to works for the company and may exaggerate the company’s performance. As the old saying goes… Let the buyer beware.

As with other high-risk investment vehicle, penny stocks offer high leverage for the investors. A small amount of increase of the price of the stock can make a good amount of money for the investor. It is also very important for the investor to be willing to sit on the stock for a long period and view this investment as a long term gain.

Penny stocks are any stock that trades below $1 per share or sometimes below $5 per share. The shares generally fluctuate in value. Therefore, it is important the understand the movement of its price not only by using technical analysis but also by using fundamental understanding of the company’s assets, growth, and direction.

I would recommend that someone interested in investing in penny stocks would ask assistance from investment advisers. A good way to do it is to subscribe to investment newsletters offering investment advice. Be cautious though in choosing the newsletter that you would subscribe to. If you are on the lookout of a good investment newsletter here are some tips for you:

1. The company offers 24/7 customer service
2. The customer service representatives are friendly, courteous, and professional
3. The editors answers your inquiry either by mail, email, or fax (most editors won’t answer your questions via phone because they are constantly looking for good stocks to recommend)
4. they have good winners to losers ratio in their portfolio (6 winners out of 8 open positions is really hot)
5. And the company provides you access to the company’s model portfolio when you ask for it.

There are so many investment newsletters out there, but if you want excellence, you may want to consider the tips above.

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.

In the auto industry we now see General Motors (NYSE:GM) and Ford (NYSE:F) trading in the $3 range. GM hasn’t seen these levels since 1943. In January 1999 they were trading at $87 per share and in the beginning of this year (2008) they were at $19. Now eleven months later they are on the verge of bankruptcy and trading at just $3 per share.

Ford is in the simular situation, they were at their all time high of $37 per share in March 1998 and are now trading at less than $2 per share.

Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) the two government sponsored mortgage brokers have also lost 98% of their valus since the beginning of this year.

American International Group (NYSE:AIG) were just saved by the government after losing 97% of their value.

For all intent and purpose, these stocks can now be classified as penny stocks. Many traders, especially the newbies and amateurs trade penny stocks for a couple of reasons. One, the price per share is cheap and two, penny stocks typically have the tendency to jump big when refer to as percentage gainers.

Do you really want to start trading these companies that I’ve listed? The answer should be no, but I’m sure quite a few of you guys and gals out there are already do so. I will tell you that these companies as well as their stocks are broken. They are all leading companies that help build this country, but because of bad business practices are now in big trouble of going away for good.

So if you want to trade these penny stocks, go right ahead, but don’t say I didn’t warn you.

Like I said there are many that are listed on the big board, most of them are alternative energy companies that are trying to hit it big. When you want to buy penny stocks online there are many places that you can go.

The one that I like the most is TD Ameritrade, a online broker that I’ve used for some time now. Their customer service is beyond great, which is to me the most important part of choosing a online broker. Since I’ve used them for so long and so much for my trades, I now pay only $7 a trade no matter how many share I decide to puchase.

Zecco is another company that is out there to use. They offer you 10 free trades per month with a $2500 minimum equity balance, after that it’s $4.50 per trade. their customer service is not as good as Ameritrade, but they do have a community board where you can talk to other traders for ideas (rule #1- there’s no such thing as a good stock tip).

Another company that I’ve not used is Scottrade. They charge $7 per trade, but they do have a lot of other fees that are listed on their site for other services that they provide. I never used them because of that reason. I feel that if you are there to provide a service of trading stocks, then that is where that only charge should be.

If you look on the internet for an online broker, you will find that there are many more, but do your research on these companies before using any of them.

Beginners

No one likes to say that they’ve just started in the stock market, but all of us started out at the beginning. Sometimes it’s the new guy who does well. (in my first three months, my portfolio grew 68%) and when you look to the experts, you will see that they’ve lost more money than you’ll ever see in your life time. They’re human too, but with an arrogance to them that sometimes bites them in the butt.

As a beginner you may want to just start with a “mock” portfolio and watch the stock market until you get more of an overview of how the stock markets work.

Amateurs

The amateurs are beginners with an attitude. They are the type that have been doing this for a short time and have had some positive results during that time. They look at what they’ve done in a few months and think that this whole stock market thing is easy. HA! They are also the first ones to think that they have it all figured out and they’ll be quitting their jobs in pursuit of trading stocks full-time. Once you have a good understanding of the stock market, your next step is to possibly stick with ETF’s (exchanged traded funds) or Mutual Funds. You can sit with an adviser to help make the choices that you need. Be aware though that these managers get paid by how much money you invest into their funds. The commission can range from .01%-5%, which can make all the difference in the world

Semi-pro

These are the type that got burned when they thought that they knew everything. They’ve done a lot of homework on how to reduce their losses, but they’re still not doing enough research into the companies that they want to invest. What they do is they trade in penny stocks (share value <$5). They feel that the risks are low since each stock is “only” $1.22. What they don’t know is that penny stocks are much more riskier than other stock (company) in the markets. Penny stocks are not a sure thing. Just because the share price is less than $5 doesn’t mean that it won’t go down more or even become bankrupt. When you play at this level, you must be aware of changes that will occur without warning and be prepared. If you feel that this is the way you want to go then make sure you check out each company in great detail.

Professionals

This last group is not the guys who work in Bear Sterns or Morgan Stanley (remember these are the type of guys who cause the housing and credit crisis from their immoral ways. A real professional doesn’t let his emotions get in the way of his trades. They do their due diligence and detailed research into each company they’re thinking about. They don’t just dump money into a stock because the herd is doing it. They take their time, they know that it’s a matter of patience and discipline. If you are at this level (or think you are), don’t sit back on your laurels. Just keep doing what professionals do…study and practice.

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