Welcome Festival of Stocks readers!  Have a read of this post.  If you like it, you might like reading “What Investment Vehicle Are You Driving?” and “Top 10 Rules For Investing In Penny Stocks“.  Enjoy!

This blog may be about penny stocks but penny stock investing is not right for every type of investor.  That being said, it may be worth more consideration than they are usually given credit for.  If you’re new to the idea of penny stocks, they are basically stocks with low market capitalization that are mostly considered speculative (aka: big gambles).  There’s a lot of risk and a lot of reward.  Penny stock are considered by some to be junk stocks and are full of cheats and liars.   This is no more true than any stock trading out there today, and understanding the risks and opportunities will help in avoiding the junk and finding the gems.

Who should invest in penny stocks?
– If you have an iron stomach and are not afraid of risk.
– If you’re young and have money you’re willing to lose.
– If you have a substantial net worth that would permit you to take outsized risks as a result of an existing comfortable investment portfolio.
– People with the time and inclination to perform their own due diligence for investing in small cap companies.

How much should I invest in penny stocks?
The general rule for speculation is to keep it between 5% and 10% of your total portfolio value.  This of course varies based on your own personal risk tolerance as well as the risk tolerance of your portfolio goal.  No one would ever suggest that you put all of your savings into penny stock investing.

What penny stocks should I invest in?
There are certainly too many small cap stocks for one person to cover so it’s nearly impossible to evaluate all of the options when considering penny stocks for investments.  It is usually best to choose a specific industry and begin to recognize the patterns of success.  From there on, you can apply these success patterns to up and coming companies trading as penny stocks and determine whether they meet the profile.  This type of success pattern can be based either on fundamental or technical analysis.  There are some sites like this one, that try to pick out a few penny stock picks that you may wish to consider performing due diligence on to see if it is a match for your own investment portfolio.  That being said, no website will tell you to go out and buy any stock.  The ideas are for information and entertainment only.  This is where the risk comes in.

What are the risks?
In a word, everything.  Penny stock investing is rife with risk.  This is quite natural as the rewards can be quite substantial.  There are many companies out there that are hired on by companies to promote their stocks as good investments.  Often times these types of promotions will line the pockets of the company owners and leave the retail consumer penniless.  That being said, these types of promotion can still be useful in making money if you know how to properly execute on them.  But in general, have the expectation that you will lose 100% of the penny stock investment.  If you’re not comfortable with that idea then the risk may not be suited to your investing style.

The deal of the century happens every week
So if you’ve made it this far in the post chances are you’re thinking that you might want to take a look and putting a little money into penny stocks.  It’s a great idea IMO.  But it’s best not to rush into any investment and penny stocks are no different.  More than any other market you will hear of penny stocks exploding 120% in a day or 400% in the past month.  Don’t let these big numbers make you feel you’re missing out.  Focus yourself on the stocks you’re interested in pursuing and once you have a plan then execute it.

Have you ever considered penny stock investing?  Has it been a positive or a negative experience for you?

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