How does a person go from rags to riches, or riches to rags, buying and selling (what we assumed to be the very unsexy) Penny Stock? Is there a secret, or are people just lucky? We’re here to set the rumors straight.
Let me preface with this: there are no guarantees when investing in the stock market and making a killing doesn't guarantee "success" (more on this later).
A stock, in general, is a type of security that represents ownership in a corporation. Corporations issue stocks to raise money and grow their businesses. These stocks can be bought and sold by investors in the market every trading day of the week for under $5 a share if they are a Penny Stock. Easy enough, right? There’s more. . .
Common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock, in that while they can carry no voting rights or special rights the can often come with a certain level of dividend payments before any dividends can be issued to other shareholders.
There are benefits to each; although, our dear friend and life motivator, 50 Cent, would certainly encourage you to, “get money.”
As for a penny stock in specific, most people define a penny stock as a stock price under one dollar; but technically a penny stock is any stock under five dollars.
If a company makes a profit, or grows its earnings over time, you as a shareholder could generally share in and benefit from the company’s profit. This is an incredible concept— sharing in a company's earnings, yet not having to do the heavy lifting.
The challenge is choosing what community (company) to believe in— not just in who they are now, but in who they could become. While Penny Stocks overall present higher risks than brand name stocks you know like Apple, Netflix, Google, Amazon, etc., the entry level cost of a Penny Stock is much lower, so the potential for growth of these little companies can be considerably higher. For example, today you could buy 2 &1/2 shares of Google at $738 a share and if it went up over the next year to $800 a share you would make $150. You could buy 16 shares of Netflix for the same $2000 and if went up from its current price of $120 to say $150 you would profit by $480.
Let’s say you found a Penny Stock for 10 cents a share and you invested $2000 you would have 20,000 shares. If the little Company you liked did well and its shares went up to 25 cents you would realize a profit of $3000 if you sold. When little Penny Stocks succeed in their business, they often do well in the market and the returns can be much higher over time when this happens.
Great investors are visionaries: they often see things others can’t—the diamond before the heat and pressure.
1. Research the hell out of it
There are many sources to find out information about whether the Bulletin Board “penny stock” you have chosen is a wise investment: talk to a broker, get the company’s prospectus, ask for the company’s periodic reports, check on the web for any positive or negative articles concerning your penny stock, and see if any complaints have been filed with the SEC. http://www.sec.gov/investor/pubs/edgarguide.htm
2. Have a Game Plan
The true penny stock player will set a target and never look back. Limit your loss by setting an exit price on what you’re willing to lose, or setting a goal based on how much you want to profit. Figure out how much money you want to invest, and then only invest a portion of that money into a single stock. If you can’t afford to lose your investment, don’t invest at all.
3. Let your Intrinsic Voice Lead You
Never purchase a stock until you feel absolutely comfortable with it. Know why you are investing in a company.
- Understand where you expect the share price to reach.
- Evaluate why you expect the company to do well.
- Determine at what point you want to take your profits.
- Take full responsibility for whatever happens.
- Be confident with your decision.
4. Take a Deep Breath and Stay Calm
Avoid emotional stress. Don’t fall in love with a company; it’s just business! He/She might be a model, but can be unpredictable. Don’t ignore the red flags. If you find yourself losing sleep, this penny stock investment is NOT for you.
5. Avoid the Pump-and-Dump
Pump-and-dump is denoting the fraudulent practice of encouraging investors to buy shares in a company in order to inflate the price artificially, and then selling one's own shares while the price is high.
Basically, certain companies can be shady. So again, do your research!
Be cautious of this by analyzing companies acutely and ensuring they carry true value. Identify the company you are interested in. Make sure that the stock has not run up 90% in a short amount of time— this generally means that you missed your window of opportunity, leaving very little upside available.
Ask yourself the following in respect to your stock:
1) Does your prospective company of interest have a product or service that the market will need?
2) Can this company become a market leader?
3) Are there any other credible players in the market space?
4) Is the company well financed?
5) Does the company have a credible management team?
Now, the $1,000,000 question:
What do you think you could make with a $2,000 investment in the right penny stock?
There are countless historical examples of stocks that were sold at dirt cheap and returned massive gains. Here are a few examples— small penny investments, yielding a substantial dollar return:
On December 29, 2000, SIRO traded at $0.27.
Today, the stock is $109, which is around 48,000% above its lows.
A $2,000 investment in December 2000, would equal 7,407 shares, worth $807,363 today.
On December 31, 2002, ZTHO traded at $0.03.
On Feb 2, 2004, it hit a high of $8.92. A gain of around 27000% - A $2,000 investment in December 2002, would equal 66,600 shares worth around $500,000 if you sold it in February 2004.
Alright, you get the picture. This last thought is of the utmost importance. Let yourself consider what I’m about to say. Above, I talked about a visionary. An individual who looks at a dirt lot and sees a mansion. I wasn’t talking about a fictional character; I was talking about you. You have the capacity to manifest the life you want— we all do.
Now you have developed a basic understanding of Penny Stocks, as well as learned the potential value of your future exit strategy. Consequently, this happens to benefit your Tinder date gone wrong practices: ALWAYS map out your available exit routes before ordering (If you remember nothing else from this article). And always remember to ask yourself; “What am I doing today that will get me closer to where I want to be tomorrow?”
Always in your corner,
The MAX-D Team