Penny Stock Guide

The World of Stocks: Penny Stocks, Small Cap Stocks, Growth Stocks, Value Stocks and Technology Stocks

The stock market offers several kinds of stocks with one of the most popular being penny stocks. It is difficult to discuss all of the types of stocks in just one article, but we will address several including penny stocks and small caps as well as others.

The type of stock an investor invests in depends on their risk tolerance. Some investors prefer individual stocks, some prefer mutual funds. Some investors prefer Dow stocks. Penny stocks can be risky and each investor has to decide on their risk tolerance level.

Value stocks are a popular type of stock category for investors to screen. Value stocks are those stocks that trade at a low price relative to its fundamentals and considered undervalued by value investors. Some characteristics of a value stocks include a low price-to-book ratio, high dividend yield, and/or low price-to-earnings ratio. Fundamentals include dividends, earnings, revenue, balance sheet items and other. Benjamin Graham and David Dodd are credited with pioneering value investing. Value investing is one type of stock investing for those looking for bargain stocks and cheap stocks.

Penny stocks are common stocks that trade for less than $5.00 a share and are traded over the counter (OTC) through quotation services such as the OTCBB or the Pink Sheets. Penny stocks generally have market caps under $500M, trade under $5.00 per share and are considered speculative, particularly those that trade on low volumes over the counter. There are several stocks that trade on the NASDAQ and AMEX that trade under the $5 level as well. Other terms to describe a penny stock include nano caps, microcap stocks, and small caps. Investors considering penny stocks have to evaluate their risk tolerance. Many consider penny stocks risky and speculative.
Growth stocks are stocks that increase in value (earnings growth, market capitalization, price) and yield a high return on equity, known as ROE. To calculate ROE, divide the company’s net income by the company’s equity. During some years growth stocks do well, in other years value stocks perform better. Generally, for a stock to be in the growth stock category, analysts expect to see at least 15 percent return on equity.

Small cap stocks are known popularly as small caps. These stocks are a popular stock market segment for stock research by investors. Small cap stocks are stocks of companies with a market capitalization of less than $1 billion. Microcap stocks are stock of companies with a market capitalization of less than $250 million.
It is important to understand market capitalization. Most new investors look at the stock price, but the important number to look at is market cap. Market cap is a measurement of corporate or economic size. It is calculated by multiplying the number of shares outstanding times the share price of a public company.

Technology stocks are generally traded on the NASDAQ exchange, but can be traded on several other exchanges. There are several technology stock sectors including the Internet, Cable & Satellite, Computers & Chips and others.

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SpeculatingStocks.com is one of the best sites on the Internet, when it comes to daily stock picks, investing and stock market analysis. We have been picking stocks since 2004 with a focus on stock picks that create large percentage point returns. We identify hot stocks and stock trends.

Money and Markets TV – August 30, 2011

Anatomy of a Stock Market Killing (Stock Market Killings) Can $15,000 become $6,000,000 in the stock market? It can and it did! Here’s proof. How did we find it. What we saw.What we didn’t see. How should we look at a stock A .75 cent stock that started paying dividends? Yes, and then started paying dividends greater than what we paid for the stock. You would have actually lived off the dividends while watching the stock go to $150. per share. We may nev…

Best trading method for me?

Ok so I am fairly new to trading stocks, due to money constraints I only trade penny stocks, but I have a career, an office job, 40 hours a week, so I’m looking for a penny stock trading style which I can manage while working, I was interested in scalping but that’s a full time job. I can really only afford to trade OTC and PINK, as I don’t have enough money to reap big gains in the NYSE, NASDAQ or TSX. I’m open to very short to some what long trades (Ideally in and out in the same day, but I can wait a week or two in a stock) is swing trading what fits me best?

Penny stocks are probably the worse possible option for you. If you can’t afford a stock in a reliable company then you can invest in a derivative of that stock such as an option or warrant. An option is a contract giving you the right to purchase the stock at a set price anytime before the expiration of the stock, a warrant is a similar contract but issued by the company itself instead of by a third party. Because of this right to purchase at a set price, the option tends to trade at the value of the stock minus the set price (strike price) stipulated in the option so the price of the option is always less than that of the stock and sometimes even pennies if the strike price is near to or greater than the current stock price even though the stock may still have a substantial price. However as long as the stock price is greater than the option’s strike price, the price of the option tends to have the same general price movements as the stock, if the stock goes up a $1, the option tends to go up by a $1 so the price movements present a greater percentage of your investment. There are some effects related to how close the option is to expiration as the closer it is to expiration there is less speculative value as there would be less time for the stock to appreciate so an option whose strike price is greater than or near that of the current stock price may not go up with the stock price if the option is close to expiration. Unlike penny stocks, when an option becomes worthless i.e.: the stock price is below the strike price, it still has some speculative value and doesn’t disappear unless it expires.

Of course, the stock market where you pay a commission to buy and a commission to sell is a costly one for people without a lot of money to invest and it’s difficult to overcome that overhead of transaction. Frequent trading by swing trading or day trading will only increase the overhead and make it harder to make any money, with limited funds you have to have a long term accumulate strategy in stocks. Mathematically, you’re better off with sport betting on a possibly illegal online gambling website, there the cost of entry into the market is lower and the probabilities and payout though worse are easier to assess.

Keep in mind that the best investment is perhaps no investment at all. How many people lamented not having the money to take advantage of the bargain prices after the price collapse? If you keep half your portfolio in cash or bonds and the other half invested then when your investments depreciate, you simply buy more till it’s 50/50 again thereby taking advantage of the downturn; if it goes up, you sell till you’re at 50/50 again thereby buying low, selling high. The optimal proportion of your portfolio to invest can actually be calculated by the Kelly Criterion (an Engineering equation from Bell Labs) but the equation is simplified for a binary outcome and requires that you know the probability and the net profit to investment ratio, however the result is that cash is an investment too and you’re better off having too much in cash/bonds then not enough. Of course, you can’t think of the cash in your portfolio as being available for anything other than investing, indeed none of that value in your portfolio should ever be drawn upon except in the most dire of emergencies and we’re talking life and death, unless your kid is on death row, don’t withdraw anything from your savings to bail him out of jail, he’s not going to die there and he’ll be fed.

Oh, and that company 401k, make sure you don’t select the ultra-aggressive portfolio which is fully invested in growth stocks, it has no ability to withstand a downturn and mathematically results in either a loss or no gain in the long run. The safest choice is the portfolio with 50% cash and bonds but you can probably gamble with a little less cash/bonds in exchange for possibly more growth. The conservative choice where it’s almost all cash and bonds, only makes sense if you’re happy with what you’ve accrued, it will result in net growth but only just.

Stock Market Technical Analysis NYSE Gap Open Down Buy the Low End Short the Top

Five Basic Tips on How a Penny Stock Listing Make You Rich

There are stock market sites and blogs that tell you how you can earn from just a small cap investment. Of course, anyone who wants to get rich would understandably jump at the opportunity. But getting rich is not a quick scheme and no get-rich-quick books will tell you that it happens overnight. It does not happen overnight. Even if you think you have the most reliable penny stock listing in the world, it still does not guarantee financial wealth.

Many people get the misconception that millionaires, or at least those who are better off got luck. Luck has only a little to do with it. It’s all hard work. There are even people who life a low profile lifestyle but have fat bank accounts. Then there those who claim that they got rich because they have a dependable penny stock listing and they want you to try it.

Don’t get fooled by this hype. Today there are so many opportunists who would do anything to get a piece of your savings. The penny stock market is one of the attractive avenues for them. If you want to get rich from your penny shares, follow these tips:

- Do not spend beyond your means. Always keep in mind that the general rule of thumb is always to buy shares at low price. When the value appreciates and when the time is right, sell it. But do not use up too much of your savings. Just allocate portion of it. A safe margin would ten percent. And spend only for the list that you personally picked and not from those who suggested it to you.

- Learn and master the basic language, the slangs and the major concepts of the trade. Any penny stock listing is useless if you don’t know how to translate them. And to do that, you have to understand the back and front ends. Along that path you will be encountering so many stock market terms that may be alien to you. Terms like the PE ratio, ticker signs, liquidity, etc. Understand them and learn them by heart.

- Have a realistic commitment of your investment money. Your stock list is supposed to showcase the hot stocks to bid. However, the list can change overnight. What is hot today may not be hot tomorrow and that happens all the time. Always double check on which penny stock you think is most likely to expect profit for you.

- Learn about the trade continually. Your penny stock listing cannot exist alone. It needs partners. Because in this business, the survivors are not the rich, the smart, and the strong. The successful investors are those who keep track of constant changes. These are the stock market trends.

In reality, what makes you rich is not because you have a penny stock listing that guarantees success. What success means is dependent on how much work you are willing to put in your business. The ingredients to success are knowledge, rational analysis, and a roster of facts. If you want to be rich is really all up to you.

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