What if there was a way to make alot of money quick and easy. You’re probably saying to yourself “Nothing is easy” You’re right! I would say the same thing. But if you work at something hard enough and you build an unrelenting determination, things begin to come easier. This includes investing in the most riskiest of investments. There are 4 steps you need to take in order to set the stage. I call these steps the 4 steps of research. But before I begin, there are different kinds of penny stocks: the ones that are below $5 are technically considered penny stocks. I will be focusing on the ones that are below $1. The 4 steps are:
I am currently a Cleveland Browns fan and have found out over the many disappointing years that you can have all the talent in the world but without a solid organizational structure, the instability of the company begins to trickle down to all levels of the business. Every part of this process is very important but when researching the leadership aspect you want to get a good feel for how the business is run and if they do things in the best interest of the investors. Make sure there’s a solid Board of Directors in place; this is the group that looks out for the investors. Not all companies are clean from fraud or abuse! The Board must be clean and ethical with all their decisions. Litigation must be at a minimum! The experience factor is very important; so, make sure the individuals in charge of running everyday operations(such as the CEO and CFO) are capable and willing.
2. Corporation’s Financial Health
Some investors may put this step ahead of leadership; but in terms of understanding this process, it’s going to be a close second. The financial health of a company must be in good standing. Some penny stocks may have a limited financial record. When you do your research, check for short – long term stability. In other words make sure the company isn’t going to “belly up” within a year. A very good indication is “cash on hand”. If a business has cash readily available and not just running on credit, then that’s a good situation to be in. Remember: you want to set yourself up for the best possible scenario. Every company may have some form of debt but make sure the liabilty is limited and in control.
The volume is the activity in a stock at any given time. Make sure the volume is high. If a stock is thinly traded, it makes it even more difficult to get in or out.
The key here is to buy low and sell high. For instance, if a stock wavers back and forth from .02 to .04; that’s a gain of 100% and want to make sure to get in at .02 and sell at .04. And then when it drops back down to .02 buy back and go through the process over and over. Be very wary because this is where it becomes very risky. A stock that is under $1 will most likely be trading on the otcbb or under the pink sheets and it’s very difficult to get in and out at the desired price. You can’t get in at the market price. You must set it up for a limit order. But you can sell it at market price (I would not recommend this). If you sell at market, the price can drop and you can actually take a loss. I would recommend putting in a limit order! It may take awhile for the order to be placed. It just depends when other investors are willing to buy at the price you want to sell at. For example, when I was buying and selling a certain stock, I would average one trade a week(buy one week and sell the next).
Disclaimer: I am not nor do I profess to be qualified in the field of investing. This article has been written solely on the basis of my personal experience and research.