Properly Evaluating Penny Stocks
For a new investor it is important to learn as much about investing as possible, so here are some ideas on how to properly evaluate penny stocks.
The toughest thing for a new investor to learn is how to avoid penny stock scams. There are plenty of people who are marketing bad stocks out there who are attempting to sell you a bill of goods. Often, crooks will choose a struggling stock, and buy a ton of it at an extremely low price. Then, they will create an aggressive marketing campaign, advertising that they are knowledgeable investors who are giving you a great investment tip, and that you should buy now to make a huge profit. Meanwhile, they are pushing the stock price up, and then they suddenly sell an extremely large amount of the stock, causing the price of the stock to plummet. In turn, the investors and the company lose tons of money, while the bad guys make a huge profit. This is just one of the many ways crooks operate which cause new investors to kick themselves for making a bad decision. You should never buy stock based on tips from people you don’t know, and you also shouldn’t believe advertising announcing new products and technologies, these announcements are rarely true, and new investors often get sucked in because of the excitement.
It is a good idea to diversify your stock portfolio. While it may seem attractive at first glance to buy a bunch of cheap penny stocks and pray for a wind fall, most penny stocks are that way because of low performance or because they are a new, struggling company. If you want to only invest in low cost penny stocks, make sure you don’t put all your eggs in one basket. Instead of putting all the money you’ve decided to invest into one company, choose several different types of companies that will not be impacted by a specific event in the market. Hopefully, one or more of your picks will turn out well, even if several of the companies fold or wind up being bad decisions.
Although you may not want to focus a large portion of your time into researching the companies you are investing in because you are not investing a significant amount of money enough to make the time investment worthwhile, it can also be helpful to check into how much debt the company you are investing in is carrying. Check both the quick ratio and the current ratio to help you get a feel for the debt load of the company. These can both be found on any quoting website.
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