Penny Stock Brokers 4u

You cannot look at an unbiased source for penny stocks advice without coming up with the most realistic advice of all – do not buy them! Sure, they are low priced and you can own a bucket load of shares for just a few dollars but that bucket has a huge hole in the bottom and your money is going to quickly leak right out of it.

Sure, there are those that will say that even though you will lose your investment 95% of the time, you will increase your investment by ten the other 5% of the time. But, do the math. If you take $1,000 for example and use these percentages, you will have just $500 left when you are done – not exactly making a profit is it? And when you consider that more realistically only 1% of penny stocks stand the chance of a ten-fold return, you are more likely to have less than $100 remaining of your initial investment.

($1,000 * 95%*0) + ($1,000 * 5% *10) = $500

So why do people continue to invest in penny stocks and why are they always looking for penny stocks advice? It is probably the same mentality that makes many people buy lottery tickets knowing their odds are millions to one or head to casinos even though they know the odds are highly in favor of the house. It is the chance, no matter how miniscule, that all the riches they dream of will happen for them.

So, does this mean that nobody should ever invest in penny stocks? No it doesn’t because it can be a fun past-time and even though the risk is high, there are opportunities for success. However, just as one should not spend their grocery budget on lottery tickets or max out a credit card at a Las Vegas casino, so too should one only invest in penny stocks those funds that are not critical to the family budget or future livelihood. Penny stock investments are a gamble, period. As long as you see them as that and stick to the amount you can afford to lose, then go ahead and have some fun with them.

There are two basic philosophies to penny stock investing:

• Buy based on hype – These are quick transactions that involve seeing an offering that is being hyped and will thus make a quick jump in price. These almost always fall flat at the end with the last investor being stuck with the “hot potato.” To do this type of trade, be sure to affect the trade with a stop loss in case you miss the peak. Also do not expect a large return – usually a 20% return is considered acceptable. Take your profit and move on to the next one.
• Buy based on company strength – These are more long term investments in which you research which companies have a good plan in place and whose share prices will steadily rise in time. Look for companies with good market depth and consistently higher trade volumes.

The best advice about these two philosophies is to keep diversified between the two and to stagger your positions. In both cases you should always have a set plan for when to buy and when to sell – do not deviate from your plan based on emotion, neither fear nor greed; instead base all decisions on factual unbiased information.  Just remember that all too often the thrill of the moment will steer you to disastrous results.

When getting involved in any investment, it is wise to fully understand how it works. You must comprehend both the advantages and the disadvantages when determining if it is right for you. Regardless of what you read or hear, your best safeguard against losing your shirt is to perform your own due diligence. With penny stocks, you must consider these important drawbacks:

• Information – There is rarely any verifiable information to be found on penny stock companies. Those that trade on the pink sheets are not required to submit any financial reports whatsoever. When looking for non-hype driven shares one must limit their choices to those on exchanges that do require at least some reporting and financial information.
• Liquidity – Penny stocks are notorious for having very little liquidity. Without liquidity you can find yourself with shares that nobody is willing to purchase. Look at trade volumes to get an idea how many investors are interested in the stock. Hyped stocks will show a high volume but not a consistent one whereas more established stocks will be more consistently high. Avoid those that stay low no matter what your investment strategy.
• Price Manipulation – It does not take much for one or two investors to perform a pump and dump scheme in which other investors can fall victim if they are not careful. You may be very happy to cash in on a quick profit but if only the manipulators are involved, they are not likely to give you the chance to make a profit.
• Tips – There are hundreds, if not thousands, of people on the Internet offering their “sure fire” penny stock picks. They will quote huge payoffs and promise that they will pick winners more often than not. However, most are not trustworthy in that they are just looking out for their own interests. They are promoting specific shares for one of three reasons:
  • They own shares in the company they are promoting and are hoping to drive up the price so they can sell them at a huge profit.
  • The companies they are promoting or some of their investors are paying a cash fee to be promoted.
  • The companies are paying them in shares so that they will be put on their pick list.

This is not to say that there are not legitimate advisors out there – just be sure you are basing your decisions on reliable information. Always beware of free stock information and even some fee-based subscription services that have their own agenda – check to be sure where you get your advice does not have any affiliation with the companies they are listing and researching.