Tips for Investing in Penny Stock Market
The penny stock market can be a tricky place for anyone to navigate. Whether you’re a novice investor or a seasoned veteran, it can be hard to figure out what stocks are worth investing in, and which ones you shouldn’t touch with a 10-foot pole.
Is the company trading low because it is a small company looking to grow or because it’s been delisted from the major stock markets? If it has been delisted – why, and should you avoid it? Adding to the confusion are the “pump and dumps” – those stocks that are artificially inflated by stock promoters that are looking to make a fast dollar.
Gautam Muthusamy, co-founder of SimplyPennies.com, shares his top tips for anyone that is interested in learning more about the penny stock market and investing in penny stocks.
1. Smart pennies: The idea that penny stocks are not worth investing in is simply untrue – in fact, the majority of companies in the penny stock market are small companies that are just starting out; or, are comfortably small—and producing a solid product with solid revenues. Penny stocks are attractive, sometimes, because, investing in these low priced stocks does not require much a huge amount of capital.
2. Big things come from small companies: Because penny stocks are so low priced, often times, they can see massive jumps in their stock prices on good company news. It is not uncommon to see 100-300% moves in a single day on some of these stocks; at the same time, it is not uncommon to see -50-80% moves on some stocks as well! The penny stock universe is very volatile—and many traders and investors like this type of trading action. They’re looking for home runs!
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3. Beware the Pump and Dumps: Because there is not much market coverage in penny stocks, unscrupulous stock promoters get into the act. As long as the stock promoter discloses that he/she has been paid to promote a penny stock, almost anything that they say is ok. “Pump and Dumps” occur when these promoters artificially inflate a stock’s value via false reporting and news releases in order to sell their shares at a price much higher than what they paid. This is where SimplyPennies.com can be a great resource for information to the average investor. We do not take any money from 3rd party stock promoters. We deal directly with the company.
4. Don’t play the “musical shares” game: A “Pump and Dump” is essentially a game of musical chairs – or, more appropriately, musical shares. Essentially, one party hypes up a stock that is “thinly traded” (has historically low volume) and the other party (or “the sucker”) gets excited over this false hype and moves in to buy the stock. As the stock surges in volume, insiders sell off their stock, make their money – and you’re left with a loss.
The penny stock market is very fragmented. Large research firms do not track and follow these stocks – as such, there is an information vacuum. Penny stocks are VERY volatile. This brings in a lot of traders who are seeking the “fast buck”. SimplyPennies.com’s mission is to provide concise, accurate information about the penny stock market, and we never take money from 3rd part stock promoters, and are a resource for “pump and dump-less” penny stock news.
Gautam Muthusamy is co-founder of SimplyPennies.com, the go-to destination for penny stock news. Prior to founding SimplyPennies.com, Gautam also founded MyOtherProfessor.com, an alternate education site for college and high school students.
Photo credit: Tomitheos
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