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.

---

Lobster Trapping for Investment Ideas

Recently, my family and I took a trip to Maine to visit relatives. During our stay, we toured the rocky shore lines and took in the beautiful architecture of the old towns.One sunny... Read More

Before You Start Investing

There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future, or to pay for your kid's... Read More

How to Invest Overseas - Intelligently!

In recent months, many advisors have talked a lot about the wisdom of investing overseas, but most have failed to really address the way to do that. For new investors, investing in the... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #1

I love to collect quotes as they concisely promote a philosophy which is readily understandable.In my 25+ years of investing I have collected hundreds of quotes related to Wisdom, Wall Street and Success.... Read More

Investing In Sons Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 to start his own business. My wife is afraid to tell him no. She thinks we should just give him the money and not expect... Read More

Trading Tips No 4: Technical Analysis The Holy Grail Syndrome

Everyone knows that the Holy Grail of investing and trading is a myth. Finding a good technical analysis tool that will give you a trading system that wins all the time is called... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well to adopt a casino mentality. At first glance, this sounds reckless and nothing more than a gambling attitude - but it's not. Why?... Read More

Preholiday Trading

The Light Crude Continuous Contract closed at $66.13 a barrel Friday, after hitting an all-time high at $67.95 a barrel earlier in the day. A week from Monday is Labor Day, which marks... Read More

High Volatility Investments

Penny stocks and options are high volatility investments that attract both the trader and the long term investor because of the small amount of capital required to make substantial gains as compared with... Read More

Franchise Opportunity Sellers Beware; franchise buyers lie on forms?

It seems completely absurd that franchise buyers lie about their financial position, available cash and abilities in order to buy a franchise. After spending 8 years setting up franchises around the nation and... Read More

Angels Investors and Their Networks

What is an Angel Investor? An Angel is usually a private person who invests in small businesses. The Angel is generally a successful businessperson or entrepreneur who looks to invest in a business... Read More

401(k) Plans

I've been in and interested in the stock market so long (one year shy of forty years) I can remember when the mutual fund pages in my home town paper were just one... Read More

How to Analyze the Veracity of Investment Newsletters

When trying to analyze whether a promotional ad for an investment newsletter or a market timing investment trading system is worthy of investigation, the following questions should be asked:Does the strategy have a... Read More

Investigate Before You Invest

"Through wisdom is a house built. And by understanding it is established. And by knowledge shall every room be filled with precious and pleasant riches!" --BibleAlways do your very own homework ... The... Read More

The Benefits of Laddering Your CD Investments

If you've decided to stock some money away in a certificate of deposit, why not reap the highest benefit over time by laddering your CD investments? What's a CD latter? I'm glad you... Read More

Penny Stock Investing

The Nature of Penny StocksFor 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.... Read More

The Perfect Mutual Fund

The Perfect Mutual Fund is the one you build yourself!The perfect Mutual Fund you build should have the objective of owning no more than 12 to 15 companies; owning shares in 12 companies... Read More

Annuity Investment - The Whole Truth

Do you ever feel like you haven't been told the whole truth? Kind of like something is missing? Well, you are not alone.With many investors awestruck over the last several years by the... Read More

Chinas Great Missed Opportunity

While a U.S. Representative to the Asian Development Bank Executive Board of Directors during the first Bush Administration, I consistently called for China to "bite the bullet" and privatize its state-owned companies as... Read More

When It Comes To Investing, Asking The Right Questions Can Help You Make The Right Decisions

Are you ready to open your pathway to financial independence?Well you should be. The sooner the better. But, how do you get started?There is so much to know about investing and the truth... Read More

Four Key Components To Building A Trading System

Need some insight on what you should really be striving for when you're building a mechanical trading system? When it comes down to it, there are really only a few criteria that are... Read More

Gold; What Type of Gold to Buy

JewelryThe advantages are:? Gold Jewelry is the easiest of the gold to buy and has the enjoyment of being able to be worn.The disadvantages are:? Retail Jewelry is often marked up by 300%... Read More

Is Offshore Banking for You?

You've probably heard about people who keep their money offshore. Most likely you assume they're all wealthy businessmen; millionaires, who have so much money they somehow 'qualify' to move it out of the... Read More

POOF goes your RRIF !

Some time ago I attended a seminar where participants were told to burn some money; a reasonably-sized amount of money. You should have heard the gnawing and gnashing of teeth in that room!... Read More

An Introduction to Offshore Investing

Once upon a time, offshore investment strategies were spoken of in hushed tones. They were conversations restricted to the plush offices of private Swiss bankers, or a dinner table topic in the expensive... Read More

Annuity Owner Mistakes

Okay, so I can tell you I have sat in front of countless numbers of people who have made mistakes when purchasing and owning annuities. And I have visited people who wish they... Read More

Bankers in Denial

Denial is a ubiquitous psychological defense mechanism. It involves the repression of bad news, unpleasant information, and anxiety-inducing experiences. Judging by the German press, the country is in a state of denial regarding... Read More

How To Create Wealth In The Stock Market

First and foremost, an opportunistic strategy for creating wealth in the stock market is needed. And the opportunistic strategy for creating wealth in the stock market must have two ingredients, a plan and... Read More

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image in today's "protective" market. They seem to be overshadowing the stocks and bonds, and this holds true for the mediocre issuers.A convertible bond,... Read More