How to invest in penny stocks

People love to buy penny stocks for the chance to make a lot of money on a small investment. But they are risky and you should know what you're doing.

Difficulty Level: hard      Time Required: ongoing

Here's How:

  1. Read a good book on penny stock investing such as Chris Bunka's "Outsider's Guide to Speculative Stocks" (See links below.)
  2. Don't invest more than you can comfortably afford to lose as you may well do so.
  3. If you're not comfortable losing it all, set a loss limit at which you will bail out.
  4. Diversify over several stocks. Don't put all your eggs in one basket.
  5. Penny stocks are often thinly traded. Use limit orders rather than market orders.
  6. Learn to recognize hype and beware of possible stock manipulation such as pump and dump schemes.
  7. Understand that individual penny stocks go through life-cycles cycles but few speculative companies become successful.
  8. Learn to recognize where a penny stock is in its life cycle.
  9. Research your stock picks to find ones with real stories and potential.
  10. Buy stocks that are beginning an upward trend.
  11. If the stock doubles, sell half to recoup your initial investment.
  12. Unless the company has become a going concern, plan on selling the rest as the stock nears the top of the cycle.
  13. Take your profits and find another company starting on the upwards leg of its life cycle.
  14. If you hung on to a stock that has declined to mere pennies such that little can be recovered by selling it, hold onto it until a new story develops and the stock starts a new life-cycle. This may take several years.
  15. If you made a big score, re-invest the bulk of your profit in more stable and secure investments (unless you really don't mind the risk of losing that big wad!)
    16.

Tips:

  1. Don't get greedy. Nobody ever lost money by taking profits.
  2. Read a good book on speculative investing. Yeah, that's step # 1 above. Do it again!
    3.

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