Don’t Be One of Those Penny Stock Investment Experts

Of all of the questions that I receive, there is one question that seems to be more plentiful than other. The question is this: “What penny stocks should I invest in?” There must be a lot of penny stock investment experts running around because somebody needs to tell all of these young, inexperienced investors the truth.

I guess for today, that will be me so here it is. Penny stocks are dangerous. In fact, very dangerous and although there are a lot of people who act like penny stock investment is easy, that is far from true.

First, you aren’t going to make any money until you change your way of thinking before you start investing. We have learned in our everyday life to get products as cheaply as possible. If you’re like me, you love to play the haggling game with cars. I shop all dealerships in the area and play each together. Lower price means better deal.

While that does transfer to the stock market, penny stock investment isn’t successful if you buy the lowest price stock. It is only successful if you buy a HIGH QUALITY stock at a low price. Get out of the mindset that low price means better value. 10 shares of Apple priced at $175 per share is a much better value than 500 shares of Sirius XM radio. We don’t look at price until we look at the quality of the company.

Next, penny stock investment is dangerous because of the risk/reward. If you buy 100 shares of Chevron, you can be relatively sure that the worst that will happen is a temporary dip in the price of the stock. As long as you’re patient, you will make money or at least not have a very large loss. Penny stocks are different. If a penny stock drops in value, it may never come back. The company may go out of business and your money may be lost.

So look at the risk/reward. Chevron is low risk and at least medium reward. Penny stocks are high risk and low reward since penny stocks tend to stay penny stocks.

Finally, it’s difficult to evaluate penny stocks. Often, they don’t have positive cash flow, a lot of debt, and very little longevity. Is the debt they incurred to start up going to result in a healthy company or will the debt cripple them? Will they ever have a profitable product or service or will they, one day, suddenly close their doors taking your money with them? The pros often take chances with these questions. Are you willing to lose your entire investment?

Is penny stock investment worth your time? It may be but before you become a penny stock investment expert, you should be an expert stock picker in high quality names. Don’t look at penny stocks until you have a healthy portfolio of blue chip stocks.

elementary-finance.com is your source for online financial advice . Check us out today to find more timely investment information include the No Hassle Portfolio, my charitable portfolio that is currently beating the market.

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Cash Is Best Now

CASH IS A POSITION

You will never hear that from any broker. Even thediscount brokers won’t utter it.Almost every investor I speak with tells me his account has lost value over the past several months. Mostsay they have lost about 20%. It is going to get worse.

Brokers tell investors that mutual funds are “safe”. Safe from what? Certainly not from seeing your money
disappear. They never want you to sell.

Why?

There are many hidden fees even in no-load mutual funds. Between the fund and the brokerage company they are skimming about 2% of your money every year. There are a few that do have less than ½%expenses, but they are few and far between.

In a brokerage company if a broker had his clients go to cash he would be fired. That piddling 1% skim means a great deal to the office manager. His office is rated on the total amount of funds. If one of his brokers suddenly had his clients transfer several million to a money market account the next day the broker would not have a desk.

Mutual fund managers are paid by the totalamount in the fund and NOT by how well or how much they make for shareholders. When a broker gets his registration he is given two manuals. The first has all the rules and regulations of the Securities and Exchange Commission (SEC). He must not violate any of these or he will lose his license.

The second is a sales manual on how to open new accounts. That is basically every broker’s job - bring in new money and lots of it.

There is no third manual. What third manual?

That is how to make money for customers, but more important how to protect a client’s money from loss.

During the 2000 - 2003 crash that saw the NASDAQ evaporate 78% most brokers were in shock. They asked their boss what can we do. He either did not know or was not allowed to tell them.

Brokerage companies will sacrifice their customers rather than try to help them preserve their capital.

Seems pretty horrible. That’s life on Wall Street. The current credit crisis is all about the greed for money. The little guy in a local office that you know just doesn’t know that he doesn’t know. He was never taught, It is not going to change.

It is your money. YOU must protect it. There are two choices. Find a fee based broker or financial planner (and most of them don’t know how to come in out of the rain) or YOU must have an exit strategy.

Check the portfolio of the broker to see what he did in 2000 to 2003. Make him give references.

You may not like what I said. You will wish you did when it comes to retirement time.

Al Thomas’ best selling book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved

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