Penny stocks are loosely categorized companies with share prices of below N5 (five Naira) on the average. They are sometimes referred to as “the slot machines of the stock market” because of the risks involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, if you know what you are doing.
Trading penny stocks has always held a fascination of quick riches and easy wealth. Let’s face it; where else can one buy thousands of shares of a hot penny stock for 5 Naira or less a piece with the chance of the next big gold mine? Talk about strike it rich. And besides, everyone knows of someone or has an uncle who struck it big with some kind of cheap-penny stock at some point in time here in Nigeria. Right?
Now, besides the possibilities of making a fortune with penny stocks, you can also loose your shirt. And even your trousers. Timing is everything with these types of stocks.
Now if you would like to find out how to pick stocks like these, I mean real winning penny stocks, then I would advise you to first get familiar with what penny stocks are all about. There is an old saying that goes, “the truth shall set you free”.
With the wrong play (false truth) you are going NOWHERE. Well, maybe down. But, with the right play, (whole truth) you have a great chance at becoming rich. In fact you can become very RICH by trading on penny stocks.
Penny stocks can do either one of two things: win you a lot of money in the shortest time, or lose you the same amount of money, in the same span of time. Clearly investing in penny stock takes a lot of know-how and well done research, if you want to avoid getting burned as result of making unwise and uneducated speculations.
Another tip if you want to make money with penny stocks is to choose a company that knows how to make a profit. To know which companies are worth your time and money and which ones should take a hike.
If you are a beginner in investing, the best tip would be not to create your entire business portfolio on penny stocks. As said before, penny stocks are volatile and risky.
Get started on a stable footing and choose stocks from companies that have been in business for a longer time, since they can offer more chances of getting you a profit.
They are very volatile and can rise and drop hundreds of percentage points in minutes, sometimes as much as 400%. This can of course be dangerous, but can also be extremely profitable if you know what you are doing.
Those who keep an open mind and take the time to learn about penny stocks will discover their enormous potential for profit.
However, it’s not as simple as choosing a penny stock you think will do well. There are numerous factors that you have to look for, as well as several traps to watch out for. Taking the time to learn by reading and studying all you can about penny stocks, to gain experience will help you succeed in making profits.
In fact, a lot of people don’t play the penny stock market because they are too afraid of its fickle nature to realize the enormous gains that a clever investor can make with these little market shares.
Below are some tips on how to invest in penny stocks:
Do your homework before you start. Learn as much as you can and be sure that you know the ins and outs of regular stock market investments before you start playing around with penny stocks.
Don’t waste time on unnecessary analysis. On the other hand, be aware that this type of trading does not require the intensive analysis needed for longer-term investing. Penny stocks are so rapid-fire that you should really only look at quick specs, like buying pressure and volume.
Start small and move up. Like anything else, investing in this market takes practice. You should start small, with extra cash that you can afford to lose. Then move up slowly until you reach a comfortable level.
Don’t stress. Penny stocks are the little guys, and as long as you follow these few basic rules you shouldn’t lose too much-at least, not more than you can win back using the dramatic ups and downs typical of penny stocks.
Simply don’t hold on to them very long, because the best way to invest in penny stocks is to buy them low and sell them high as quickly as you can. With their constant, dramatic fluctuation in value, this means that you’ll be buying and selling at lightning speed all day.
Get at least one year’s experience with mid- and large-cap stocks first. You should become adept at reading a balance sheet, income statement, and cash flow statement during this time.
Learn more about the specific aspects of penny stocks that make them both potentially lucrative and dangerous to your portfolio. Understand the mechanics behind money flow, market capitalization, and share structure. Also understand the purpose of a public company and the commonality of scams, dilution, and loss of investment value associated with penny stocks.
Look for “Red Flags” - Common attributes of companies running a scam or operating for the sole purpose of raising money via stock dilution.
Look for companies that have consistently generated cash and are growing their free cash flow over time. Avoid companies with a heavy debt load.
Instead of share prices, compare price per share against book value per share (assets minus liabilities).
Limit any tiny stock to no more than 5% of your portfolio.
To maximize your profits, remember, normally only after you have made a number of trades using small low risk sums can you even think about making the kind of trades you need to make the big money quickly. In most cases investors simply have to put in the hours - and weeks and months and years - to become experienced in the market.
Only after trading many times and analyzing the trends and results over a long period can an investor say he really understands trading stocks, and even then he will still lose on some trades.
Finally, your investing returns will depend on the risk you are willing to take. If you are a low risk taker, you can expect minimal opportunity for losses and minimal opportunity for gains. If you are a high risk taker, you can expect a greater opportunity for gain and a greater opportunity for loss.
Do you have any question concerning investment, how you can join investment club, buying shares, dividend, share certificate, stockbrokers, registrars, you want answers to? Send your questions via text to or call
Ese Amadasun: 08058767059. E-mail: amadasunese@nigerianobservernews.com.
Oyegue Stanley: 08055965767. E-mail: osastan2000@yahoo.com
or visit http://nigerianstockinvestmentforum.blogspot.com, http://tradeyourwaytomillions.blogspot.com .
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