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8 Penny Stocks to Avoid
There are many good penny stock investments available, which could turn a
small amount of capital into a small fortune very quickly. However, to
discover these you need to know what to look for and what to avoid. When
searching for that one big payoff, steer clear of the following examples.
The Phone Salesman - Anyone who is attempting to sell you investments
over the phone should be considered an enemy. They have high-pressure
sales tactics, and effective, believable arguments. However, they are not
doing you any favors, no matter how good they make an investment sound.
They are operating in their best interest to dump over-the-counter stock
on you, and the money you pay in will go into their own pockets, or the
pockets of their company.
There has never been a need for good companies that are going places to
resort to these type of tactics, but there has always been a need for
poor, sinking, or shady companies to do so. If you choose to ignore this
advice you deserve what happens to your investment.
You may also run into difficulty trying to find a buyer for your shares
once you decide it is time to sell.
Very Low Volume Stocks - Without much trading activity it becomes
increasingly difficult to buy or sell for the prices you want. As well,
it becomes nearly impossible to get an understanding of where the stock
price is heading, or to calculate fair valuations for the company’s stock
price.
Not only that, but companies subject to low trading volume generally do
not have a lot of positive interest.
The Hot Tip Stock - There are actually professional promoters who make a
very good living generating and nurturing rumors about some penny stock
that’s guaranteed to go through the roof. The entire concept hinges on
the rumor being spread from person to person, at the office, over the
phone, or at social venues.
The promotional ploys can be very costly for investors who get involved
without special knowledge about the company or the actions of the
promoter. In most cases if a stock really is going through the roof you
won’t hear a word about it, because a select few individuals will be very
intent on keeping the information to themselves.
Guaranteed Performance - If a stock is guaranteed to go up, it will
almost always go down. Nothing is ever certain, especially on the stock
market. When someone guarantees certain performance out of a stock, they
may be a promoter, naive investor, self-serving broker, or have heard the
guarantee from another source. In any case, don't believe them. Instead
check into the company yourself and if you feel it is a good investment,
you may want to proceed.
Sinking Ships - When a stock has dropped a lot you may think that, "it
can’t go any lower," or that it is "a good bargain." Especially with
penny stocks, you need to avoid this type of thinking because many
sinking ships don’t ever rebound, and they can go lower, and they aren’t
good bargains just because they cost less than before.
Commission Free - If you are interested in getting stock commission free
you may think you are saving money, but it generally means that you are
buying over the counter stock directly from a promoter or the company.
Either way, they take their own invisible ‘commission’ from you, either
by selling to you for an arbitrary amount which is unfairly high, or
selling to you for the asking price rather than the bid price based on
their own current valuations.
International Penny Stock - We’re not talking about living in the U.S.
and steering clear of Canadian stock, or vice versa. We are talking about
penny stock issues from Africa, Australia, European, Russian, or South
American penny stock markets. First of all, you won’t be too impressed
with the level of investor protection and exchange honesty in some of
these regions, and you most certainly won’t be too impressed with the
broker fees you incur when trying to purchase internationally.
Besides, if you can’t find good penny stock investments in North America,
you won’t be able to find them anywhere else either.
Warrants and Rights - These are not technically stocks, but instead are
derivative investments based on an underlying company's shares. However,
they often appear like penny stocks because they sometimes get listed in
the stock pages, and often trade for pennies.
It is unlikely that you will accidentally purchase derivatives, but make
sure you know what you are trying to buy by understanding the listing
criteria of the paper you are reading, or verifying your purchase with
your broker.
To get free information about investing in penny stocks visit pennystocks
They offer information on the definition of penny stocks, getting
started, benefits, risks and how to find a good penny stock.
About the Author
Peter Leeds, one of North America's leading Investment Coaches, is a
self-made millionaire who has created his fortunes on the stock markets.
He has also empowered thousands of individuals to do the same. His
personal success and incredible ability to consistently pick money-making
stocks has earned him a loyal following of successful investors and has
generated significant attention from the financial world.
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