Penny Stock Q&A: Can I make money investing in penny stocks?

Question by Rob : Can I make money investing in penny stocks?
Curious, if anyone has any expirience?

Best answer:

Answer by Danny
I have lots of experience and I will tell you this; penny stocks are not fruitful investments.

The thing you have to remember is, it is not the value of the share that counts, but the % of gain.

For example; if I invest in a company at .50c a share, an amount of $ 1000, or if I invest in a company that is $ 1000 a share for the same amount, a 2% gain is 2%. I?ve made the same amount of money despite the fact that I?ve got 2000 shares with the penny stock vs. 1 share of the blue chip stock.

The other thing you have to consider is the bid/ask spread. I can?t go into lengthy detail about stocks, but I will tell you that the bid and ask spread for pennies are higher than their blue chip counterparts.

If you want to take a total gamble, I could recommend Vana Blue (VBLU) because they?ve gone from pennies, to $ 200,000/share, to pennies, back to $ 200,000.

But as a general rule of thumb, you will lose money on penny stocks.

edit; do NOT consider recommendations from penny stock sites. They invariably suck, and many of them are trying to pump and dump their own stocks. Check out ticker symbols CXAC, MCZ, and XNL; these are all stocks recommended by penny sites that failed miserably.

Oh sorry, XNL is no longer listed because it failed entirely and was removed from the pink sheets.

edit; @WilliamB ?Sure you can. I have a trading strategy that has returned 159% per year for the last ten years?

What a joke. Industry standard from financial firms is 14% return annually. If you made 159% you were an exception and did it one year only. The results you claim are exponential exaggeration.

And btw, your link is dead.

Answer by Mathwhiz
You can make a lot of money playing penny stocks. You can also lose a lot of money in penny stocks. I have done both. You typically have to time everything just right. If you wait too long to sell, everyone else that is playing the game sells and the value tanks. If you buy ?on the upswing? it?s typically too late.

You should check out some of the pennystock investing sites, usually they send out one or two good picks every three months?you really have to watch to see what?s the trend.

Answer by William B
Sure you can. I have a trading strategy that has returned 159% per year for the last ten years (see the results here: http://www.stocklocater.com/results.html).

I use only stocks priced .25 to .55, although anything under $ 2 is considered a penny stock by many brokerages.

I have used the same criteria for stock selection on stocks priced $ 1 to $ 2 but the gains were only half as good.

Now I do use 3-4 penny stocks at a time to add diversification because these can be pretty volatile and the last thing you want is to invest in one stock and have it lose 50% or more. So spread the risk around with penny stocks.

Answer by Zack F
I would best describe pennystocks as a party. When word goes around that a certain stock is is going to be the ?popular? place to be . . . it shoots. Some penny?s shoot so high you can get rich in literally minutes . . . The problem is that by the time most people hear about the ?party?. Everyone has had their fun and are now leaving and moving on.

Great tip here. Pennys are very volatile, very dangerous, but have huge profitability. Never create a portfolio of pure penny?s. For example, my current holdings are Ford, Sprint, SixFlags, Citigroup along with 5-6 pennystocks.

Be sure to diversify your penny stocks, especially when starting out. Pennys tend to shoot erratically and rely very much on Press Releases. I recommend finding a good chatroom to hear what stocks are being talked about or ?pumped? . Not all pumped stocks are bad . . . but people tend to pump stocks when they are desperate to make money out of them. Formulate a list of about 20 ? 40 penny stocks and look into them, investigate ( called DD , or due dilligence . . . means dont blindly buy anything you are persuaded towards ).

Here are some things I would look for:

1. Stay away from 0.0001 stocks . . . Yes you can buy millions and it gives you a special feeling inside ^ ? but they are extremely risky, some sit at that price literally forever.

2. Reverse Splits are ALWAYS detrimental in the world of penny stocks. To help yourself avoid being stuck with a stock that is about to R/S , avoid buying stocks that are highly diluted. Stocks that have billions of shares and a low stock price are redflags. I prefer to buy stocks that have steady movement upwards with under 400 Millions shares and a price between 0.0025 and 1.00.

3. Penny stocks are NOT like regular companies. Reviewing their last 10 years of financial information only gets you so far. Pennys shoot based on two things: P/Rs and charts ( undervalued stocks aren?t extremely difficult to spot if you learn to efficiently read charts ) . Reading charts combined with hearing which stock has what new PR out . . . will be your best chance at making money. On a side note, let me say that a PR which informs investors of a pending or completed FDA Approval is HUGE. Ive had pennys make 8x my investment literally from morning to 4 pm because of FDA approvals.

4. Remember HYPE fuels penny stocks. People tend to frown upon that fact . . . why not use it in your favor?! If many people are talking about a stock, look into it! If that penny turns out to be hyped because it just had a 200% spike last week . . . forget about it. If the chart seems fairly calm and rumors are buzzing, you may want to look into it. I typically, not always, buy my penny?s like this. 2 Pennys with pending FDA approval and consistent PR?s updating progress and positively reinforcing a bright future for the company. 1-2 Green Energy stocks , mainly because the government is giving so much aid to Green companies, but also because its the future of our economy and many people believe it will be the light out of this depression. ( I currently hold GERS but it has billions of share at a very low price, which I warn against and do not recommend unless you?re fond of risk ) 1-2 stocks based purely on their charts. Yes I said it, I dont care what these stocks have to sell. If its a crap video game that is about to hit Walmart shelves and has been in a slump recently, I will look into it. Read charts and find stocks that are ?alive? but not peaking. If you think a stock MAY continue to rise but you cannot be sure, I stay away. And finally 1 unique stock. Unique meaning something that has not been done yet such as vitamin enriched coffee or electronic cigarettes or a new app for the iPhone.

5. Last rule. You must learn to spot fake PR?s or misguiding PR?s. When a company says ? Our stock is estimated price @ 0.32 ? and its current price is 0.012 . Dont fall for that. Typically if a company is telling you what their stock is worth , its because they aren?t happy with its current price and wish it would go up . . . DO NOT oblige them. Also, Do not be afraid to hold a penny stock. When I look at charts, and I see a stock preparing to setup a nice surge, I buy as low as I think it will go, then set a Limit to sell immediately after buying it based on where I think it may go. It may take a month, 2 months to reach your price. If you are confident in your chart reading skills and the company seems well off, then you dont need to worry.

FINAL NOTE
Pennys require waking up early. The best way to make money is knowing whats going to happen with what stocks BEFORE the market opens. I use a 2 chatrooms to find my buys and check every morning to find what everyones talking about. Stay away from companies with vast amounts of outstanding shares and be patient, BUT not too patient ^ ? . Set a limit buy and sell price EVERYTIME. If you later think it wont hit your sell price, change it. Hope these tips helped, was alot of

Answer by trader
Yes you can, but you need to diversify your investment on multiple of stocks to reduce the risks as much as possible.

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