– Variety: You can find many different types of companies in the penny stock market, so you can dabble in some different arenas, and see which produce best for you.
– Success is easier to obtain when you are smaller at first: A company making a profit of only $60,000 a year has a much better change of doubling its profits than a large company with earnings of one billion dollars a year.
– Times are good so are they: unlike bigger companies, penny stock can deliver above average performance when interest rates fall and the economy picks up.
– They are motivated: Bigger companies sometimes become comfortable in their situation, and do not try as hard to improve, so you do not see as much return, where as many small companies have young and vigorous management with a strong financial stake in the company that motivates them to success.
– Easy to turn into something big: Many famous penny stock success stories were shell companies that expanded, this potential still exists. You may be investing is something that is now a convenient vehicles for someone else’s business interests. However, it can be transformed into a thriving enterprise, and stock prices will react accordingly.
– If you pick the right one and get in early, you will do well if the company attracts the interest of the institutions.
– Stocks in some of the smaller companies are often tightly held – this can lead to exaggerated price movements in the event of large buying.
Disadvantages:
– Rely on others success for their, so they may fail: many small companies are dependent on bank borrowings for their finance, so they are more prone to failure as banks call in their loans during recessions.
– If the market is too small it can be difficult to sell for a good price.
– Many make mistake of blowing money because price is low, low cost per share can be deceiving, and dangerous.
– With penny stocks the idea is that this small company is going to make it big. However, the majority of small companies never make it, and tying up your money in such companies for long periods of time can substantially reduce your investment returns.
Tips for Penny Stock Investing
– Watch for overnight booms, and sell quick when this happens. In a stock market boom, the prices of penny stocks can double sometimes overnight. You can make large short-term profits by investing in penny stocks, and selling at the right time.
– Don’t fall in love with your stocks. Most penny stocks never turn promise into actual profits, and when you are enamored by the company you lose the perspective needed and the objectivity needed to do well with penny stocks.
– Take your profits while you can. If you still think the company will do well, sell only half, that way if the company fails, or the stock plummets at least you do not loose any money.
– Don’t try and go long term, if things look poor, cut your losses, don’t dig in.
– Get in early. The earlier you get in, before the crowds, the better chance you have of making a profit.
– Always watch the market capitalization of your penny stocks. Don’t be fooled just by price!