Thinking Of Buying Penny Stocks
Thinking of buying penny stocks? Be careful of which ones you’ll want to invest in. A penny stock is a stock that is sold by a company that is either new or the company is trying to raise capitol for basic operation or expansion. They are referred to as penny stocks because the value is less than $5.00. Many different brokers offer penny stocks that are traded on the OTCBB (over-the-counter bulletin board). You can also subscribe to an on-line service. You know the ones, that tell you that they’ve invested in a company that the value grew 5000% in a short time.
The issue with buying penny stocks is that it is very risky. The statistics for investors who trade penny stocks and lost money is some where near 70%, so the odds are against you. You also need to be aware that there are some brokers who will inflate the stock by dishonest practices. You need to research the broker who offers these stocks just as much as you do in the stock itself. If they claim to having insider information, that is a sign that you need to walk away from that firm. The only way to find a good penny stock to invest in is to consult with a broker, but be careful they make money by make sales and may only have their own interest in mind. There is big money in trading penny stocks for these guys and to do that they need to sell you the stock.
Many investors have made a fortune in buying penny stocks, but for every great windfall stock that made millions, there are about nine that lost billions collectively. Look at Yahoo, they were trading at $0.78 a one time and now trade in the $20 range. Like I said though, that’s only one of thousands of companies that are traded every day.
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Choose Wisely When Buying Penny Stocks
Buying penny stocks can be very rewarding if you know what your doing. In the alternative energy sector there are many companies that trade below the $5.00 range. Which is considered a penny stock.
T Boone Pickens has been heavily playing in the wind power energy market. He is investing in the Texas wind power fields that will be started in the near future. Companies that are in the alternative energy sector have been moving quite well, but that does not mean that every company is moving forward.
Wind power energy is not a new concept, it’s now moved to the front of the line because of the rise in oil prices. The industry is make strides in new technologies as well as investors who are willing to back the company financially for research and development. If you want to make big money in the stock market, this may be the sector that you need to look into.
Some of the companies that look good are ones that have patents on their designs. That’s considered intellectual property which adds value to the company. Different companies do different things in the field. Some are manufacturers while others are installers.
Many of the manufacturers will only deal in one aspect of the wind power industry. While one may build the turbines for the towers and another supplies the cable to transfer the power, you’ll need to know where they stand in the grand scheme of it all.
In the solar power industry there are many stocks that are considered penny stocks. The technology is not as efficient as wind power so there are more companies that could fail in growing. In that field there are new and less cost effective methods being done that a smaller company may be able to grow.
So when you are thinking of buying penny stocks, look at each company carefully and choose wisely.
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When Buying Penny Stocks Is Not A Good Idea.
Many people want to trade in the stock market but they don’t have a lot of cash to do so. They talk to other people like themselves who are doing it. They are told that the best way to start is to buy penny stocks. That can’t be any further from the truth. Yes they can make big profits, but they can also lose a lot of their hard earned money playing in the stock market that way.
When you want to start buying stocks I suggest you look at ETF’s (Exchanged Traded Fund) and Mutual Funds. There are costs to each of them. You need to do your due diligence in looking for the right one. If your are starting out with less than $50,000, ETF’s and Mutual Funds are the way to go.
Buying penny stocks is what people who are uneducated in the stock market do. Don’t get me wrong, many people become very rich trading penny stocks. You hear it all the time, but what you don’t hear is that many more lose money playing it this way.
There are great companies that are on the rise in their industry, but not many. For every ten companies that are started, nine out those ten fail. Out of the ones that make it far enough to be traded on the OTCBB (over-the-counter bulletin board), at least 30% never make it past their initial public offering price.
You need to do research on the companies that you want to invest in. Learn to read financial statements, balance sheets and listen to conference calls on their earnings reports. Typically you need to do 5-8 hours of research for each company you are looking to invest in. After you buy into a company you will need to do at least one hour each week on each company. Do what I like to refer to as doing you due diligence, will end up saving you a lot of headaches later on.
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