Investing in stocks is a great way to save money. If you’re smart with choice in stocks, you could even end up multiplying your savings exponentially and end up building a nest egg for a more secure future. If you’ve already been investing in stocks, then you’ve probably come across the term “penny stocks” at one point or another. If you’re completely new to the world of trading, then this article might be a brilliant way to learn about them.
What’s most relevant at this point is that penny stocks are a great way for you to diversify your portfolio and increase your potential for profit in the process. This article will speak to what penny stocks are, how you can manage your portfolio, and what strategies you should adopt when investing in penny stocks.
Remember, this is not a get rich quick scheme. As you would with any other type of stock, trading in penny stocks is subject to risks and a certain amount of effort and awareness. One can’t just put money into penny stocks and then leave them be to rise in value. Read on and figure out whether penny stocks are indeed the right fit for you.
PENNY STOCKS EXPLAINED
Traditionally, the term “penny stocks” refers to stocks whose share prices are below (not equal) $1. Nowadays the term covers shares that are priced at $5 or lower, stemming from the concept that shares with such a price are “pennies on the dollar” when you consider the high prices of some clue-chip stocks. However, the interest in penny stocks goes beyond the low price.
Penny stocks also have a high potential for profit as the companies which issue these stocks are usually in their initial phase of operations, have recently gone through their first IPO, and, provided everything goes according to plan, the stock price has nowhere to go but up. Previous reports have shown us that penny stocks can grow an insane 2400% over a period of two years, and growth like that would entice even the smallest of investors.
The lower share price also means you can hold a larger volume of shares. Considering the highest price mark is $5, you can buy a lot more shares with your savings than you could if you were to buy Google or Apple shares, priced at $1211 and $208 respectively. The other problem with blue-chip stocks is that you can’t expect the same exponential growth that you can with penny stocks. Companies like Google and Apple, who have truly achieved global dominance in their fields, can’t grow at the same rate in such a short amount of time.
However, as mentioned at the beginning of this article, “penny stocks” aren't a get rich quick scheme, and there are risks associated with penny stocks. If the company is positioned to grow at an exponential rate, then it is just as likely to collapse due to its young age, established market players, or a lack of funds. However, there are ways to mitigate such risks.
One way of doing so is to regularly “analyze” your penny stock portfolio. By analyzing, we mean you should be keeping up with the company’s performance and focus on key factors such as profits, losses, business practices, and marketing strategies. As mentioned above, these companies are young, and one misstep on any of these key factors could have a negative impact on the company and its share price. You need to be vigilant and be prepared to make changes to your portfolio based on the information you receive on the stock.
As a private investor who handles and manages his own investments, if you’re looking to invest in penny stocks, then the only strategy you should really go with is “buy and hold”. Once you’ve purchased a large block of shares (due to the low price), you hold on to them for a long period of time and watch the stock price go up. Once you’ve reached the desired selling price or the share growth starts to slow down, you can then go on and sell the stock in the market.
The reason you can’t short-sell penny stocks through day trading is that this strategy requires constant detailed analysis of key factors (even more than those mentioned above) in real-time. With a full-time job and other responsibilities, one can’t manage to do so. Furthermore, you’ll also need to invest an insane amount of money if you’re looking to make decent profits through day trading. The only way you can exercise this option is if you were to hire a broker who deals solely in penny stocks. However, doing so means you have to pay a commission and finding a reliable broker isn’t always easy, especially if you’re not willing to pay a hefty commission.
Large scale investment, such as passive investment through an index fund, is not really an option with these stocks as a separate index doesn’t exist for them and, as explained above, the definition and parameters of “penny stock” are still up for debate. However, more important than your strategy is the commitment that you need to make to such an endeavor. You need to be very vigilant with your investment in penny stocks and staying up to date with the company’s developments is also necessary.
EDUCATE YOURSELF – A SHORT TIMOTHY SYKES REVIEW
If any of the above makes sense to you, then you should definitely look into Timothy Sykes. A professional trader, Timothy Sykes has produced a range of educational videos and set up subscription services to help students and teach them all about penny stocks trading. If DVDs are too old school for you, then try the Timothy Sykes Millionaire Challenge. You’ll have access to a massive video library with lessons on trading in penny stocks, investment strategy, stock analysis, and regulatory compliance. You’ll also get live alerts regarding new stocks, interesting articles, and stock tips to help you get an edge on the competition. To learn more about it, check out this Timothy Sykes Review.