| Many people who have never played the stock | | | | When you're ready to buy shares of a penny stock, |
| market game before start with penny stocks. Heck, | | | | make sure you take a second to think about what |
| even if you've been around investing for decades, | | | | you're doing. All too many first-time penny investors |
| penny stocks are still your ticket to triple, quadruple | | | | take the jump on just a few shares of a penny |
| or even quintuple-digit gains. You just can't see those | | | | stock without realizing how much the size of their |
| if you bet on the Dow. | | | | investment will affect their returns. |
| The problem is penny stocks are a bit more difficult | | | | Think about it this way…You're an investor who |
| to research than their large blue chip cousins. To | | | | sees an attractive stock for $1 per share. You don't |
| make this a bit simpler for first-time investors, here | | | | have a large portfolio yet, and you don't want to |
| are 10 things to keep in mind when looking for solid | | | | take too much of a risk, so you buy just 50 shares |
| penny stock plays: | | | | for $50. |
| 1. Think Outside the Box | | | | Turns out you picked a winner that made 40% in |
| When it comes to penny stocks, some of the | | | | just a week - $20 of pure profit. You sell and rejoice |
| wackiest ideas have translated into serious gains for | | | | in your penny stock success. But wait…is that |
| investors who were willing to think outside the | | | | celebration justified? |
| box… | | | | You're forgetting about those $10 execution fees |
| Back in the day, who would've thought that | | | | you paid to buy and sell that stock. That's $20 |
| computers were the "wave of the future"? Early | | | | altogether. Looks like you only broke even, despite |
| investors in companies like Microsoft and Yahoo, | | | | the fact that you had a stellar stock. |
| that's who! They made a bundle by thinking outside | | | | When you're buying penny stocks, make sure you're |
| the box and betting on business models and | | | | buying a large enough quantity that account costs |
| technologies that were out of the ordinary. | | | | (like execution fees) don't eat up your profits. You |
| There are new technologies and business models out | | | | can find out your minimum returns to break even |
| there in the penny stock world today. Are you willing | | | | with this: |
| to think outside the box on your next penny | | | | Execution Fees/Stock Acquisition Price x 100 = |
| investment? | | | | Break-even Gain (Percent) Needed |
| 2. Know What You Own | | | | 7. Don't Get Greedy |
| In the world of Wall Street, whether you're investing | | | | Lots of penny stock investors see 200%, 500%, |
| in penny stocks or blue chips, one of the biggest | | | | even 1,000% gains on a stock but still end up losing |
| rules is to "know what you own." What does that | | | | money in the end. It's not because they didn't plan |
| mean? | | | | their buys properly…it's because they got greedy! |
| You should know the company you're investing in | | | | It doesn't matter how much money a stock makes if |
| inside and out. Know its business. Know how it makes | | | | you're not ready to press the button and realize |
| money. Know its management. | | | | those gains. That's why you need to set solid exit |
| But as important as this rule is for any investor, it's | | | | points for any penny stock you buy. |
| doubly important for investors in penny stocks! | | | | It's human nature to want to hold onto an |
| That's because with penny stocks, share prices can | | | | investment as you see it climb with no end in sight, |
| change quickly if you don't keep a handle on them. | | | | but doing that is a great way to miss out if that |
| So know what you own and your investments won't | | | | trend turns around. When you analyze an investment, |
| end up owning you. | | | | think about a logical exit price and sell for that. Picking |
| 3. Don't Get in Over Your Head | | | | solid exit points will become easier as you develop |
| When you see a hot penny stock that's ready to | | | | your investing chops. |
| take off, it can be hard to keep from cashing out | | | | 8. Don't Get Too Nervous |
| your 401(k) to buy as many shares as you | | | | The flip side of getting greedy is getting nervous |
| can…getting in over your head with penny stocks is | | | | with stocks that are seeing major gains in short |
| an almost sure way to get burned. | | | | periods of time. Relax. As a penny stock investor, |
| Even though penny stocks can make you some | | | | you've got to be ice-cold when you see one of your |
| serious money, they're volatile - and that means you | | | | picks take off. |
| shouldn't put more than 10% of your portfolio on the | | | | Again, it comes down to picking good exit points for |
| line. | | | | your investments. If you're sure that your stock is |
| What's the smart penny investor to do? Set up an | | | | bound to start losing ground before you hit that |
| account for just penny stocks and load it only with | | | | target price, maybe it's time to re-evaluate what that |
| money you're prepared to lose. | | | | price should be. |
| 4. Don't Be Afraid to Ask… | | | | Remember, you can reanalyze your targets anytime, |
| One of the beauties of penny stocks is the fact that | | | | but you should never make trades on emotion alone. |
| they're smaller companies that are out there for | | | | 9. Be Realistic |
| smaller investors. | | | | While investors might hope for tripe-digit gains on |
| As an individual investor, a big multinational might not | | | | every pick they make, even the most seasoned pros |
| give you the time of day. That's usually not the case | | | | of the investing world make bad picks from time to |
| with penny stocks. In fact, it's not unheard-of for | | | | time. That's why having realistic expectations is so |
| individual investors to pick up the phone and chat | | | | critical. |
| with a company's CEO or CFO on the spot. | | | | As with picking the right target prices, knowing what |
| If you've got a burning question about a penny stock | | | | kind of gains to expect comes with experience as a |
| prospect, e-mailing or calling the company's | | | | penny investor. It's tricky to know when you should |
| investment relations firm or corporate offices might | | | | expect 20% from a stock and when you should |
| be one of the most telling ways to figure out if that | | | | expect 200%. |
| stock's for you. | | | | But setting those realistic expectations now, from |
| 5. Be a Skeptic | | | | the get-go, will get you into a habit that will help you |
| Remember when we said to think outside the box? | | | | structure your portfolio in a way that will get you the |
| Well, do that, but don't forget to be a skeptic… | | | | most bang for your investment buck. |
| Just because a company has an interesting new idea | | | | 10. Be Ready for the Next One |
| doesn't necessarily mean it's a good penny stock | | | | It's easy to sit back and relax after you've just |
| prospect for your portfolio. The key is…Do you | | | | made a trade - especially if you banked a nice gain. |
| think that it can monetize its idea? | | | | But not so fast! |
| If that answer isn't immediately clear, it's time to dig | | | | As much as you might want to bask in your investing |
| a little deeper into that company's prospects. Thinking | | | | success, fight that urge. |
| outside the box is a great way to get innovative | | | | The secret to the penny stock game is to always be |
| companies on your radar, but being a skeptic is the | | | | on the move. Always be on the lookout for that |
| only way to make sure that translates into gains for | | | | next penny powerhouse - the next one might just |
| your portfolio. | | | | be your best yet. |
| 6. Think, Then Buy | | | | |