You might be reticent to consider putting your feet into the waters of buying penny stocks. After all, you’ve heard there are scamming pirates on the seas of investing in these stormy water stocks that can be high one moment and low the next.
Knowing 5 key rules will help you stay afloat and increase your chances of success in the penny stock investing world.
When buying penny stocks, never fail to research as much as you can.
If you have a gut feeling that something is not what it seems, practiced investors would suggest you trust it. Do your research so that you have thorough knowledge on which companies are the highest quality and have the most potential for gain.
Penny stocks can be victim to bankruptcy as they are shares of newer, undiscovered companies that can either grow or end up liquidating all their assets and claiming zilch in their bank accounts.
Finding experienced investment mentors is invaluable. Also taking a look at what successful investors have done in the past is a good way of learning which behaviors and patterns to adopt when buying penny stocks. You will find a vast amount of research as well as quality mentors behind any successful investor you come across.
As you do your research, consider buying penny stocks that will pay dividends.
Investing in a company that cares enough to pay dividends is a good indicator of a high-quality company. A low liquid, scamming company will never offer dividends to you as they are looking to get in and out as quickly as possible.
A company that pays dividends is invested in keeping shareholders as part of their growth journey believing that regularly sharing profit with their shareholders will only increase their foundations in growth.
Regardless of how promising buying penny stocks looks, never put all your money on one stock.
This is true across the board, but, it is particularly important in the world of buying penny stocks! There is truth to all the hype about the volatility of penny stocks for good reason. If you put all your eggs in one basket, you could very well run the risk of having all those eggs broken.
It pays to have an experienced mentor and broker who will help you build a diversified portfolio with buying penny stocks. Ideally, a healthy, diversified portfolio will start with 20 varying stocks.
If anyone tells you to consider buying penny stocks with negative earnings, you can bet it’s bad advice.
Scammers tend to promise that the underdog stocks will rise up to become power stocks with no guarantees that this will actually prove to be the case.
Negative earnings is across the board the single most obvious red flag to an upcoming bankruptcy. Never hesitate to walk away from a company that has a history of losing money.
When buying penny stocks, make use of trailing stops.
Trailing stops eliminate the problem of not knowing when to sell. They place a limit on your loss so that you don’t sell too low. Trailing stops are best set up with the knowledge of your experienced broker.
Trailing stops are set up on the tried and true process of “cutting your losses and letting your winners ride.” Taking the time to set up trailing stops maximizes your profit and minimize your losses.
You can read more on the process of trailing stops here. It’s worth the time to learn!
Above all, as you start buying penny stocks, remember to lean on experienced mentors and be willing to put in hours of research.
Charles Schwab and E*Trade both have all the characteristics of a good stockbroker. They have no surcharges for low-priced stocks, reasonable volume restrictions, no costly add-ons, and a low minimum account balance.
Remember to be mentally prepared to ride out the highs and lows over the long-term after buying penny stocks; It’s definitely not a get rich quick scheme.
By riding out the highs and lows and listening to your experienced adviser, you will know when is best to sell and when you should buy.
As long as you make it your practice to avoid the scent of a sketchy situation, you will be, at least, treading safe waters in what is considered the volatile realm of penny stocks.
Surrounding yourself with various outlets of learning the facets of investing will ensure even more success in your investing career. If you enjoy listening to podcasts, consider listening to a few episodes of The Investing for Beginners Podcast. Other podcasts worth your attention when buying penny stocks are listed here.
We wish you well as you make you first moves buying penny stocks!