Penny Stock Investing

The Nature of Penny Stocks

For anyone new to investing in penny stocks, you should first be made aware of the differences between these micro-cap stocks and the more conventional blue-chip and mid-cap investments. Unlike buying shares in a large, stable company like Ford or IBM, you are dealing with speculative investments.

Penny stocks literally trade for pennies per share, or for as much as a couple of dollars. The beauty of penny stocks, of course, is that sometimes they 'grow up' and become mid-cap stocks, multiplying in value hundreds of times over and making many people very wealthy.

With penny stocks, also called micro-caps or juniors, you will see much greater price volatility, and thus greater and quicker gains and losses in asset values. It is precisely this volatility which draws investors to the junior markets, as one good pick could make you hundreds of times what you could ever make on the larger markets.

Of course, there is more risk than buying bonds, blue chips or defensive stocks - but this added risk is tempered with the possibility of making the big gains.

Most penny stocks, but not all, are resource or technology companies who initially sold shares in an effort to raise money for exploration or product development programs. Many of the companies have large debt loads and are not necessarily making more money than they are losing.

However, it is the potential of a major, or even minor success in their quest that often incites dramatic price climbs, and this is where their value lies.

Profit Potential

Modern Strategies Inc. owner of http://www.pennystockinsider.com, has been in the business of researching penny stocks for many years, and has become effective at uncovering the best small cap investment opportunities and the most rewarding profit situations in the penny stock markets.

There are several ways to profit from penny stock investments. Modern Strategies Inc. has uncovered the most highly rewarding investment situations.

Promotional Stocks - These issues may or may not have much actual value. Promoters generate interest in these types of stocks in an attempt to drive share prices higher. The promoters own great amounts of shares and so they make more money the higher the share price travels. Eventually, they sell their holdings into the promotion and generate great personal profit. Then they move on to the next project, leaving the original stock and all its investors behind. Without the work of the promoter, the promotional issue soon comes crashing down.

These are the type of stock investor hear horror stories about, because many people often lose a good deal of money when they are naive about promotional ploys. However, getting in on a promotional stock early in its life cycle, and keeping an eye on the actions of the promoter can be very, very rewarding. It's like having a full time stock promoter doing everything in his power to get the share prices of the stocks you own to go through the roof, and investors who get in early can go along for the ride!

Technical Precursors - Often technical analysis can reveal patterns in the trading cycles of penny stocks. Sometimes these patterns illustrate excellent buying opportunities, where the underlying stock has a high probability of moving up strongly, and only a low probability of declining in value.

In addition, there are sometimes situations where several positive technical indicators combine at once to reveal that an issue is very likely to increase strongly in price over a short time frame, indicating that the particular issue is has excellent investment potential.

Fundamental Strength - Fundamentals involve such criteria as earnings, debt load, assets, and many others. It was long thought that earnings were the major driving force behind share prices, but Modern Strategies Inc. has since disproved this theory as it applies to penny stock companies. Instead, uncovering the best medium to long term investment opportunities must be done through exhaustive analysis of company financial statements. Investors should get involved with the companies that are making the most money, have the most effective management, and have improving trends in all factors of their operations. As well, industry comparisons and the examination of key financial ratios present clues as to which companies are destined for higher share prices.

Proper fundamental analysis of penny stock companies will generally reveal that there are about 2 or 3 superior investment opportunities out of every 100 companies examined. These 2 or 3 excellent corporations often represent better investments than 90% of stocks on the large-cap markets like the NYSE.

Undervalued Situations - Sometimes companies see their share price slide dramatically. There are occasions where this decrease in price has very little to do with the underlying fundamentals, and more to do with factors such as overall market weakness, interest rate increases, or others.

Opportunity exists in such situations because the shares are often 'unfairly valued' and a return to more realistic prices is inevitable. There are often cases where companies have more cash on hand per share than their share price, or have price to earnings ratios as low as 5.0. Although there is much more to uncovering the best undervalued situations, this is the basis behind the concept.

Minimized Downside - Often the combination of technical analysis and undervalued situations can reveal penny stock companies that have tremendous upside potential, and have a very low probability of declining in value to any significant degree.

These type of investments are excellent choices for penny stock investors that are less risk adverse.

Special Notes About Penny Stock Companies

Penny stock companies change their names more commonly than other publicly traded companies, and are also subject to more stock-swaps and consolidations. In any of these events, your shares in your account will be automatically replaced with the appropriate stock by your broker and notice will be delivered to you.

For example, if you owned 5000 shares of EXO and for every 5 shares you were to receive 2 shares of LOR, you would find your account holdings re-adjusted to reflect 2000 LOR which can be traded as normal. You will no longer have the 5000 EXO.

On rare occasions, a penny stock company can become delisted. This means that the shares will no longer trade on the exchange, and if the company does not get listed on another exchange or re-instated at a future date, you may be subject to a loss of capital equal to 100% of the total investment. However, this is a very rare occurrence, and there are simple ways to protect yourself against it which are periodically discussed in Modern Strategies Inc. publications. Delisting generally becomes a greater concern for investors who intend to use a long-term (several years) buy and hold strategy with penny stocks.

Peter Leeds, one of North America's leading Investment Coaches, is a self-made millionaire who has created his fortunes on the stock markets. He has also empowered thousands of individuals to do the same. His personal success and incredible ability to consistently pick money-making stocks has earned him a loyal following of successful investors and has generated significant attention from the financial world.

---

Direcway & Wildblue Set to Square Off this Fall?

There is a cat fight brewing between Direcway LLC, Starband... Read More

Investing In or Owning Drug Lab Properties

Clean Up (includes the insides and the outside of a... Read More

Index Trading Weekly Update

Here is a sample of the last newsletter:SP500 Last Signal... Read More

Mutual Fund Returns May Not Be As They Seem!

Arthur Levitt, during his tenure at the SEC, experienced many... Read More

Part II of Day Traders and Swing Traders and Options? Maybe!

Before every protective put trade it is possible to calculate... Read More

Global Markets: A Window on the World Economy

Expectations drive the market. Every stock price is driven by... Read More

A Secret Revealed: Why Most (Day) Traders Fail

The following perspective on (day) trading comes from my many... Read More

Franchise Opportunity Sellers Beware; franchise buyers lie on forms?

It seems completely absurd that franchise buyers lie about their... Read More

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do... Read More

Boost Your Income With Financial Spread Betting

About 6 years ago I started to notice that certain... Read More

New U.S. Mint Coins a Golden Opportunity

In April, the U.S. Mint revealed plans to strike in... Read More

Who Wants To Be A Millionaire?

I am sure you have probably read about the power... Read More

Discipline in Investing and Trading

Discipline can be simply defined as your ability to follow... Read More

Is Starting A Business For Me? What To Consider Before Starting A Business

Do you have the right temperament?Starting a small business is... Read More

What Age Should I Start Saving For Retirement?

Ask this question to 100 people and you will receive... Read More

Looking For a Safe Investment? Try a Certificate of Deposit

If you are looking for a safe investment and you... Read More

Bankers in Denial

Denial is a ubiquitous psychological defense mechanism. It involves the... Read More

Makin The Sauce

Let's face it, you're on a roll. After getting down... Read More

Coca-Cola - A Value Stock?

There has been much talk lately about Coca-Cola and its... Read More

Maniac Investment

Let's first understand what maniac means. According to Webster a... Read More

How To Find An Investment Advisor

Do you think you need an Investment Advisor? Hold on... Read More

Margin Benefits are Marginal at Best

Margin is one of those things that novices find puzzling... Read More

The Past Does Not Equal The Future: Mutual Fund Returns!

A way that investors get ripped off and in a... Read More

Investing Pointers for Neophyte Investors

If you know next to nothing, how do you go... Read More

Consolidation Period

The economic data reported Fri showed continued above trend growth... Read More

DXPortfolio: A Great Passive Investment of 25% to $40% per month

First, I need to explain about e-currencies or digital currencies.... Read More

Before You Invest You Must Read This

It is important to answer the following questions before you... Read More

It?s Not the Size of Your Bank Account

You might think that if you win the lottery or... Read More

Discover the Foundation of Retiring Wealthy - The IRA!

Let me tell you about some legal ways to avoid... Read More

Annuity Owner Mistakes

Okay, so I can tell you I have sat in... Read More

Is a SEP Plan Right For Your Business

A SEP is a special type of IRA. Under a... Read More

Justify Social Security ... Dont Save for Retirement

It is a common question when investors review their retirement... Read More

CYA

You all know what CYA stands for. Of course, Cover... Read More