5 Killer Tips To Make Money From Investing in Penny Stocks

make money penny stockWith the high rewards on offer from penny stocks, retail investors
(like me and you) are flocking to invest in these risky securities to
try and earn more money than they could with their savings or pension
scheme. But before you jump in head first, check out these killer tips
to help ensure you are not throwing your money down the drain.

redbulletKnow the Company
As with investing in the giant corporations of the world, you need to know what you own in your penny stocks portfolio. This means you need to know how they make money, how they plan to make money, who runs the company and what is their past history. Also consider what legal challenges might there be in the future, particularly in the case of hi-tech and pharmaceutical businesses and is the company in a position to commercialize or get taken over.

Only Use Money You Are Prepared To Lose

Penny stocks are volatile and today’s darling can be tomorrow’s demon. These companies react to news far more than any company on the NASDAQ and even a slightly negative press release can cause half the value to be wiped off the stock price, for example if an oil exploration company is drilling for oil and they announce that one of their prospective
wells turned out dry this can have a very big impact on the share price. These companies are penny shares for a reason: no one really knows what’s going to happen next and if you take out the kids college fund to put it in to the African mining company the day before civil war breaks out, well you explain that to your wife!

 

redbulletBe Sceptical
If a company issues then it will do a pretty good job of promoting why it’s a good investment opportunity because the more people that buy their shares the more capital they can raise. Every company will claim to have a revolutionary new product or a mining license that is just around the corner so it’s your job to see the wood for the trees and determine whether it’s a viable opportunity or just another business pitch. Similarly, be on the lookout for people unnecessarily ramping up a particular stock, most likely they have some kind of agenda.

 

redbulletInvest The Right Amount
Although this sounds silly, many first time penny stock investors think they can test the market with a few hundred dollars and buy several of the hot picks to spread the risk. However, don’t forget that there are
transaction fees you need to pay to the broker to buy and sell the shares. These transaction fees can seriously harm your profits if you are jumping in and out with small amounts.

 

redbulletSet Your Exit Points
Do you own a stock that has made you 50% profit? Now, if you can’t see the problem in that statement then your mindset needs to change. You have only made a profit when you sell your shares. Setting a clear exit point and not getting greedy is the key to the success of a penny stock trader. Take Desire Petroleum for example, in late 2010 they were up by
400% because they were about to drill for oil in the Falkland Islands but a change in fortune sent them crashing to less than 10% of the highest value. Investors who got greedy in the expectation of further profits saw the stock wipe out their investment.

 

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