Penny Stock Investing Online Philosophy

Penny stocks are shares that trade from a fraction of a penny up to $5.  Penny stocks are also known as ‘Small Cap Stocks’, ‘Micro Cap Stocks’ and ‘Emerging Growth’.  But a penny stock by any other name is still a Penny Stock.

Penny stocks are riskier than average investments, but also have tremendous risk-reward potential.  Some penny stocks have gone from a few cents to many dollars, while others have become worthless.

Some investors like penny stocks because it does not take a large cash outlay to get started.

The upside of penny stocks is the ability to turn a small investment into a large investment. For example, both Microsoft and Xerox started as penny stocks.

The downside is the risk, which includes volatility of the shares, and the lack of corporate transparency.  No doubt, you have heard or seen the horror stories about penny stock scams.  Penny Stocks are often on the brink of demise and are below a buck for a reason. In the past, penny stocks had a ‘bad name’ because of the large amount of risk taken and the lack of information about the companies invested in.

In reality, many penny stock companies are making a serious effort to succeed.  However, losses are something you need to expect when investing in Penny Stocks.

To be successful, you need patience.

Penny stocks can be found in many sectors including hi-tech, the Internet, biotech, mining, basic manufacturing, energy, transportation, gaming and health care.

Many Penny Stocks are listed on the NYSE, AMEX, or NASDAQ.  By focusing primarily on listed penny stocks, there is a certain element of security in knowing that the companies had to meet certain financial criteria before being listed by the exchanges.

As with all types of investing, the Balance Sheet of a Penny Stock company is very important as it illustrates if a company has enough cash and assets to keep it afloat going forward into the future.  The age of the company is also important as it gives an idea of the company staying power.

The Penny Stock Company must also be relatively easy to understand, have an improving balance sheet or positive momentum with a new product line or involved in a hot sector.

Penny Stocks are risky and should only make up a small portion of your overall portfolio and this strategy requires strict diversification.