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At a party recently I spoke with a friend that I write articles about penny stocks. He replied that he preferred to stick with “safe” investments. When I asked what he meant, he said, “you know, bigger stocks like Microsoft, Amgen, and GE. Most of the time I’ll just buy a mutual fund.”
To be polite I didn’t laugh about it until I came home to sit down and write this.
Penny stock investments might be volatile, but the risks of these investments are greatly exaggerated in some investor’s minds. Sadly, the risks inherent in large cap stocks and money management tools are as often ignored by investors. I think it’s only prudent when making portfolio decisions to evaluate risks carefully before investing. Let’s do that here.
Volatility
Penny stocks are more volatile on a daily basis than large cap stocks. Because these issues trade at low price points and speculators jump in and out, some think this volatility is damaging.
On the contrary, volatility is a penny stock investor’s friend. People learn to play the bounces of penny stocks to quickly build a portfolio value.
Why do investors think of volatility as evil? In the large cap market, volatility often means the stock is moving for reasons beyond the individual’s control. Government data appears and the entire market heads south. If a stock beats the Dow Jones Industrial Average by a few points it’s a great day for investors. Because of this, large cap investors fear volatility.
Penny stocks often don’t react to large market news. On bad days it’s not hard for penny stocks to make money. A penny stock trader will tell you that they’ll take speculators and uncertain data any day over government data and stocks that follow the broad market most sessions.
Fundamentals
Good penny stock investors becomes comfortable with some warts on the balance sheet. Great penny stock investors can discern which fundamentals are just cosmetic and those that are potentially fatal. Large cap stocks aren’t well researched by many investors before they throw money at a stock, and many may be dangerous. Delphi was recommended by an analyst three days before they went bankrupt! Enron continually told investors everything was okay and there was no need to panic. K Mart and General Motors were both considered “institutions” that couldn’t fail before heading into bankruptcy court.
The bottom line is that fundamental analysis is important no matter what size stock you decide to trade. The difference between penny stocks and large cap stocks is that the volatility of penny stock markets creates opportunities for someone willing to spend time on research to make exponentially more money than they can in large cap stocks.
Inflation Risk
Ask any financial planner what their biggest fear is about their client’s portfolio, and the word “inflation” will come up in the top three answers. Why? Many investors don’t realize the huge threat to their nest egg that inflation presents. If an investor wants to invest only in “safe” investments that keep pace with inflation, how much money will they have for retirement? It isn’t difficult to understand that if you never beat inflation you’ll need to save nearly dollar-for-dollar what you’re going to spend in retirement. How easy is it going to be to accumulate any real money when your investments are all in “safe” places?
Clearly, unless you’re saving half your income to live on later, you’ll need a strategy to beat inflation. In good markets large cap stocks might help, but what about years like 2000 to 2010? If these types of years continue in large cap markets it spells doom for many investor’s retirement plans. Investors need to look for some place to trade where they can systematically improve a portfolio enough to make a difference. That’s where penny stocks excel. Investors in this arena have the ability to easily outpace inflation and save enough to retire in the manner they choose.
Fees
The great news about mutual funds is that someone is getting rich. Sadly, it’s probably not you. As a former financial advisor, it became difficult after a few years to justify the huge expenses that everyone between an investor and the investment was skimming off the top. Here’s how it worked: the fund would have a management expense ratio. Although some funds have fairly low levels, many charged over 1.5 percent of the value of the account. Funds hid trading costs by reporting gains to the fund after traders were paid. These are often up to .5 percent or higher. As an advisor, we’d take 2 percent of the value of the portfolio.
What do all of these percentages mean? They mean that the client had to make four percent just to pay everyone helping them, even on days they lost money! Many people think that funds only take fees from profits. Sadly, fund managers are going to get paid their four percent regardless of results. Like a leach, their job is to keep you earning just enough that you’ll give them another quarter to sit on your money and collect high fees.
Penny stock investors have one fee: trading costs. These are an up-front cost that the investor sees every time they make a move and can evaluate before deciding whether a trade makes sense or not. Because there is a much tighter lid on fees, penny stock investors can invest confidently without constantly finding out who has their hand in the cookie jar.
Before calling penny stocks “too risky” for your portfolio, remember that your goal, whatever it may be, is going to require funding. If you’re worried about investment fees, bankruptcy, inflation, and volatility, you may want to look more closely at your portfolio. It may be time for penny stocks to help spread the risk and create better returns.and that we can help your achieve as you check out the best penny stock trading techniques here;(http://amarachi21.jeffed77.hop.clickbank.net)
Thursday 7 July 2011
Value in Penny Stocks
(copy the link at the end of this article for best stock picks)
“Value and penny stocks?” you’re asking yourself. You scoff. These companies rarely have a clean balance sheet, many don’t show any profits, and some don’t even have a product! How do you find value?
As my mother said, value is in the eyes of the beholder.
Okay, maybe my mom said “beauty” is in the eyes of the beholder, but don’t you think that value is a beautiful thing? Finding a value stock hidden among the penny stocks is like finding a four leaf clover. At first you can’t believe your luck. Then you don’t trust yourself and search the internet to understand why nobody else found it. Then you invest. In many cases, it’s only a matter of time before the world discovers the stock and you’re off to the bank with a large, large deposit.
Much as with larger stocks, penny stock valuation is part science and part art. Some stocks appear to be a value play on the surface, but they’re just bad stocks. They have too much debt, executives that are too highly paid, a product mix that’s competing with the big boy companies, or an ineffective marketing strategy. Using a few simple techniques, you’ll be able to search penny stocks looking for discounts like you would at the neighborhood garage sale.
The definition of valuation is different to a penny stock trader than to a large company investor. In the penny stock market you need to look at the company through the eyes of someone who would buy the entire company, rather than as an investor hoping to earn a few nickels on an increasing share price. Searching for the appropriate price for most penny stocks is nearly impossible, partly because of the speculation in these markets but also because of the lack of earnings and diversified products for most of these companies. Your goal when looking for a “deal” is to find, before larger investors, companies that are good targets to be swallowed. Even if they don’t end up being purchased, the chance that they might be “in play” will increase speculation, which in turn increases volatility. Volatility to a penny stock investor means good potential for profits.
Here are some penny stock value measures:
1) Look for improving earnings and a flat stock. Companies showing improving earnings year over year while the stock remains the same price are bound to take off—assuming other fundamentals aren’t killing the stock, such as too much debt or a high cost of revenue. Improving earnings creates value because sustainable sales are used to improve the selling price of the company to potential buyers.
2) Find low debt levels. It’s difficult for large company management to justify to shareholders why they bought a company with mountains of debt and little revenue. In some cases a large company will buy a debt-ladened penny stock, but if you’re the CEO of a Fortune 500 company wouldn’t it be easier to explain a company with a great product and not much debt? You might even pay more for this type of investment. Value!
3) Explore companies that have buy-back plans. The number of shares on the market is called the “float.” As an investor in a penny stock, you’d rather own as many shares as possible, wouldn’t you? Every time a company takes shares off the market the value of your shares increases. Companies which consistently buy back shares are using this as a global corporate strategy and will probably continue buy-backs in the future. On the flip side, avoid companies constantly diluting your shares by selling new ones. This decreases your value in the company and could signal cash flow difficulties ahead.
4) Mutual fund and pension fund ownership positions. These large, influential investors often are able to throw around their weight with management to protect their investment. To ensure they get results from their penny stock, they’ll help create alliances, recommend top notch advisors and executives. Although rare, mutual fund or pension fund involvement in a penny stock is very, very good for valuation.
Sometimes all of your fundamental analysis points to a good stock, but you are afraid to purchase the position because everyone else decided to purchase the day before you did, creating a nice, big spike in the price. You certainly don’t want to overpay for an issue, so you’ll need to follow a few techniques to improve your odds of purchasing a stock “on sale.”
1) Watch your favorite stock’s volatility. Is there a rhythm you can follow? If the stock spiked because of a press release or investor hype, there’s a fair chance you might get another opportunity to buy. Place a limit order to purchase the issue near the bottom end of the stock’s usual swing.
2) Always use limit orders. Penny stocks can move in a hurry and in more than one case I would have purchased a stock for far more than I wanted to pay if I’d just issued a simple market order. Limit orders allow you to set a price you don’t want to purchase above. If the stock is trading at $.62, I may place a limit at $.65 or $.66.
3) Follow short interest. Shorts will sell after they feel like they’ve flushed every profit nickel out of the issue. At the end of a short-rally the stock will fall quickly. Although you have to ask yourself why you’d get involved with a stock that is a short favorite, if you feel strongly, wait for the rush to end and you’ll be able to purchase when it falls back to its normal trading range.
Penny stocks may be considered value plays if you redefine your concept of what constitutes a bargain. In the penny stock world, searching for value is just another way of saying you’re looking for big profits that haven’t yet been discovered by the masses. Happy hunting.
if desiring to find valuable penny stock is what you want,paste this link on your address bar for more info on the best penny stock picks;(http://amarachi21.jeffed77.hop.clickbank.net)
“Value and penny stocks?” you’re asking yourself. You scoff. These companies rarely have a clean balance sheet, many don’t show any profits, and some don’t even have a product! How do you find value?
As my mother said, value is in the eyes of the beholder.
Okay, maybe my mom said “beauty” is in the eyes of the beholder, but don’t you think that value is a beautiful thing? Finding a value stock hidden among the penny stocks is like finding a four leaf clover. At first you can’t believe your luck. Then you don’t trust yourself and search the internet to understand why nobody else found it. Then you invest. In many cases, it’s only a matter of time before the world discovers the stock and you’re off to the bank with a large, large deposit.
Much as with larger stocks, penny stock valuation is part science and part art. Some stocks appear to be a value play on the surface, but they’re just bad stocks. They have too much debt, executives that are too highly paid, a product mix that’s competing with the big boy companies, or an ineffective marketing strategy. Using a few simple techniques, you’ll be able to search penny stocks looking for discounts like you would at the neighborhood garage sale.
The definition of valuation is different to a penny stock trader than to a large company investor. In the penny stock market you need to look at the company through the eyes of someone who would buy the entire company, rather than as an investor hoping to earn a few nickels on an increasing share price. Searching for the appropriate price for most penny stocks is nearly impossible, partly because of the speculation in these markets but also because of the lack of earnings and diversified products for most of these companies. Your goal when looking for a “deal” is to find, before larger investors, companies that are good targets to be swallowed. Even if they don’t end up being purchased, the chance that they might be “in play” will increase speculation, which in turn increases volatility. Volatility to a penny stock investor means good potential for profits.
Here are some penny stock value measures:
1) Look for improving earnings and a flat stock. Companies showing improving earnings year over year while the stock remains the same price are bound to take off—assuming other fundamentals aren’t killing the stock, such as too much debt or a high cost of revenue. Improving earnings creates value because sustainable sales are used to improve the selling price of the company to potential buyers.
2) Find low debt levels. It’s difficult for large company management to justify to shareholders why they bought a company with mountains of debt and little revenue. In some cases a large company will buy a debt-ladened penny stock, but if you’re the CEO of a Fortune 500 company wouldn’t it be easier to explain a company with a great product and not much debt? You might even pay more for this type of investment. Value!
3) Explore companies that have buy-back plans. The number of shares on the market is called the “float.” As an investor in a penny stock, you’d rather own as many shares as possible, wouldn’t you? Every time a company takes shares off the market the value of your shares increases. Companies which consistently buy back shares are using this as a global corporate strategy and will probably continue buy-backs in the future. On the flip side, avoid companies constantly diluting your shares by selling new ones. This decreases your value in the company and could signal cash flow difficulties ahead.
4) Mutual fund and pension fund ownership positions. These large, influential investors often are able to throw around their weight with management to protect their investment. To ensure they get results from their penny stock, they’ll help create alliances, recommend top notch advisors and executives. Although rare, mutual fund or pension fund involvement in a penny stock is very, very good for valuation.
Sometimes all of your fundamental analysis points to a good stock, but you are afraid to purchase the position because everyone else decided to purchase the day before you did, creating a nice, big spike in the price. You certainly don’t want to overpay for an issue, so you’ll need to follow a few techniques to improve your odds of purchasing a stock “on sale.”
1) Watch your favorite stock’s volatility. Is there a rhythm you can follow? If the stock spiked because of a press release or investor hype, there’s a fair chance you might get another opportunity to buy. Place a limit order to purchase the issue near the bottom end of the stock’s usual swing.
2) Always use limit orders. Penny stocks can move in a hurry and in more than one case I would have purchased a stock for far more than I wanted to pay if I’d just issued a simple market order. Limit orders allow you to set a price you don’t want to purchase above. If the stock is trading at $.62, I may place a limit at $.65 or $.66.
3) Follow short interest. Shorts will sell after they feel like they’ve flushed every profit nickel out of the issue. At the end of a short-rally the stock will fall quickly. Although you have to ask yourself why you’d get involved with a stock that is a short favorite, if you feel strongly, wait for the rush to end and you’ll be able to purchase when it falls back to its normal trading range.
Penny stocks may be considered value plays if you redefine your concept of what constitutes a bargain. In the penny stock world, searching for value is just another way of saying you’re looking for big profits that haven’t yet been discovered by the masses. Happy hunting.
if desiring to find valuable penny stock is what you want,paste this link on your address bar for more info on the best penny stock picks;(http://amarachi21.jeffed77.hop.clickbank.net)
Why you should consider penny stocks
THROW LARGE-CAP SCREENS OUT THE WINDOW!
Why Changing Your Purchase Criteria Can Make You Millions
Investors who come from large cap markets such as the NYSE attempt to apply their usual fundamental screens to penny stocks and always find themselves horrified when they start digging into individual issues. Many worthy penny stock investments are debt laden, have weak or no profits, and only one or two products. After looking at any penny stock using large-cap screening techniques, you’ll soon ask yourself, “Who’d invest in this?” I’ll tell you who:
People who are smart enough to throw large cap screens out the window when evaluating penny stocks, that’s who.
You’re going to need a new set of ground rules. Penny stocks, being a completely different beast from large-cap stocks, need to be viewed through a different lens. Here’s what you need to remember:
1) Every penny stock is there for a reason. Companies built on good ideas sometimes don’t have sufficient access to capital and went to the market for it. They have young, aggressive management. They need to build a foundation. Bad companies are there because they have no product, inadequate product, huge amounts of debt, or compete in an over saturated marketplace.
2)These companies have warts. If you’re looking for the perfect, no lose penny stock investment that you can spot a mile away, it’s time to trade elsewhere. Becoming wealthy takes the courage to live with volatility and problems.
3)The real question is which warts are cosmetic and which are going to kill the company. Your job is going to be to become flexible and smart enough with your screens to adjust and find the winners in this market.
Once you’ve adopted this new viewpoint, you’ll need to begin thinking about which screens work and which don’t.
1)You cannot compare your penny stock easily to competitors. If you think you can, you’re probably evaluating the wrong stock. Great penny stock plays work in niche markets and are working one or two products. A company with a new phone technology shouldn’t be compared to AT&T. Comparing these, you’ll always pick AT&T and you’ll potentially miss out on tons of opportunity.
2)P/E ratios can, for the most part, be thrown out the window. If your company has no revenues yet because they’re exploring a new drug, you aren’t going to find any earnings, which is the “E” in P/E ratio. Therefore, searching for P/E isn’t normally a wise penny stock screen. Even if a company has a P/E ratio, why would you use this for penny stock analysis? Investors routinely use P/E to evaluate the risk involved in a company. You should be trading penny stocks because you’re hoping to make money from the volatility in these investments. If you don’t want volatility it’s going to be difficult to become wealthy.
3)Insider trading, while still helpful, is suspect as a measurement of a stock’s worth. In larger companies you may be able to see trends using insider trading data that’s publicly available. Penny stocks are so small that owners will usually hang on until the very end or will diversify slowly out of the position because they’ve had their entire life savings wrapped up in this single project.
Hopefully, you’re beginning to see that to be successful, you’ll need a new lens when you trade penny stocks. So which fundamental screens are important and which should be disregarded?
While evaluating penny stocks is no more difficult than evaluating large cap stocks (except for access to information), your methodology must be more fluid than in many large-cap schemes. You won’t be able to easily evaluate a single data point. Instead, look to analyze several pieces of data and make a decision based on the consensus.
Here’s what I mean:
- Company XYZ has a new drug. They have no revenue and a large research staff. This company will fail every screen for P/E, revenues, and profits you use, and will probably also not pass any debt screens.
-Company ABC just reorganized last year and has a whole new management team and streamlined focus. All year over year data will be nearly irrelevant as the new company regains it’s footing.
-Company MNO has a single product that is gaining ground. They have great sales numbers but their cost of sales is through the roof. Although this may be a problem, remember that penny stocks are characterized by quickly arcing sales. The company may have the right team in place to create sales far above current levels.
To me, there are a list of important screens, but they should be melded together to form a complete picture of the firm.
Here are some of the most important penny stock screens:
-Increasing revenues. Although I’ll invest in a company with a great potential product, I prefer to see a company that’s beginning to catch some wind in their sails (and sales, if you want the pun).
-Alliances. I like to see companies that are attached to larger, more established sales staffs or purchasers. Not only does this help the company get off the ground more quickly, the large company may be a potential buyer down the road.
-Low debt. The majority of penny stock companies are saddled with debt. Whenever I can find a firm without a huge debt burden that company is not only poised to grow more quickly, but it’s easier for a more established company to purchase.
If you want to be successful trading penny stocks, all you have to do is change your focus. Traders willing to adapt to a new set of rules stand to profit remarkably from penny stock trading.
to know more about profit from penny stock copy this LINK to your address bar;
(http://amarachi21.jeffed77.hop.clickbank.net).
Why Changing Your Purchase Criteria Can Make You Millions
Investors who come from large cap markets such as the NYSE attempt to apply their usual fundamental screens to penny stocks and always find themselves horrified when they start digging into individual issues. Many worthy penny stock investments are debt laden, have weak or no profits, and only one or two products. After looking at any penny stock using large-cap screening techniques, you’ll soon ask yourself, “Who’d invest in this?” I’ll tell you who:
People who are smart enough to throw large cap screens out the window when evaluating penny stocks, that’s who.
You’re going to need a new set of ground rules. Penny stocks, being a completely different beast from large-cap stocks, need to be viewed through a different lens. Here’s what you need to remember:
1) Every penny stock is there for a reason. Companies built on good ideas sometimes don’t have sufficient access to capital and went to the market for it. They have young, aggressive management. They need to build a foundation. Bad companies are there because they have no product, inadequate product, huge amounts of debt, or compete in an over saturated marketplace.
2)These companies have warts. If you’re looking for the perfect, no lose penny stock investment that you can spot a mile away, it’s time to trade elsewhere. Becoming wealthy takes the courage to live with volatility and problems.
3)The real question is which warts are cosmetic and which are going to kill the company. Your job is going to be to become flexible and smart enough with your screens to adjust and find the winners in this market.
Once you’ve adopted this new viewpoint, you’ll need to begin thinking about which screens work and which don’t.
1)You cannot compare your penny stock easily to competitors. If you think you can, you’re probably evaluating the wrong stock. Great penny stock plays work in niche markets and are working one or two products. A company with a new phone technology shouldn’t be compared to AT&T. Comparing these, you’ll always pick AT&T and you’ll potentially miss out on tons of opportunity.
2)P/E ratios can, for the most part, be thrown out the window. If your company has no revenues yet because they’re exploring a new drug, you aren’t going to find any earnings, which is the “E” in P/E ratio. Therefore, searching for P/E isn’t normally a wise penny stock screen. Even if a company has a P/E ratio, why would you use this for penny stock analysis? Investors routinely use P/E to evaluate the risk involved in a company. You should be trading penny stocks because you’re hoping to make money from the volatility in these investments. If you don’t want volatility it’s going to be difficult to become wealthy.
3)Insider trading, while still helpful, is suspect as a measurement of a stock’s worth. In larger companies you may be able to see trends using insider trading data that’s publicly available. Penny stocks are so small that owners will usually hang on until the very end or will diversify slowly out of the position because they’ve had their entire life savings wrapped up in this single project.
Hopefully, you’re beginning to see that to be successful, you’ll need a new lens when you trade penny stocks. So which fundamental screens are important and which should be disregarded?
While evaluating penny stocks is no more difficult than evaluating large cap stocks (except for access to information), your methodology must be more fluid than in many large-cap schemes. You won’t be able to easily evaluate a single data point. Instead, look to analyze several pieces of data and make a decision based on the consensus.
Here’s what I mean:
- Company XYZ has a new drug. They have no revenue and a large research staff. This company will fail every screen for P/E, revenues, and profits you use, and will probably also not pass any debt screens.
-Company ABC just reorganized last year and has a whole new management team and streamlined focus. All year over year data will be nearly irrelevant as the new company regains it’s footing.
-Company MNO has a single product that is gaining ground. They have great sales numbers but their cost of sales is through the roof. Although this may be a problem, remember that penny stocks are characterized by quickly arcing sales. The company may have the right team in place to create sales far above current levels.
To me, there are a list of important screens, but they should be melded together to form a complete picture of the firm.
Here are some of the most important penny stock screens:
-Increasing revenues. Although I’ll invest in a company with a great potential product, I prefer to see a company that’s beginning to catch some wind in their sails (and sales, if you want the pun).
-Alliances. I like to see companies that are attached to larger, more established sales staffs or purchasers. Not only does this help the company get off the ground more quickly, the large company may be a potential buyer down the road.
-Low debt. The majority of penny stock companies are saddled with debt. Whenever I can find a firm without a huge debt burden that company is not only poised to grow more quickly, but it’s easier for a more established company to purchase.
If you want to be successful trading penny stocks, all you have to do is change your focus. Traders willing to adapt to a new set of rules stand to profit remarkably from penny stock trading.
to know more about profit from penny stock copy this LINK to your address bar;
(http://amarachi21.jeffed77.hop.clickbank.net).
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