Venturing into the world of penny stocks is exciting. You are investing because you want a sizeable return. To succeed in this venture, you need to know how to evaluate the stock for its upside potential. This means you must figure out if the stock truly has possibility or is it just a “flavor-of-the-day” type of stock. Whether you’re investing a $100 or $100,000, you must create a credible risk-reward assessment of the stock.
Some of the tips to pursue when buying penny stocks:
Limit your investment and Diversify:
It is natural for you to feel excited about the possibilities of your desired penny stock, nevertheless you must protect yourself. Minimize your losses by reducing your holdings in a particular stock by 2% or less of your portfolio. Depending your appetite for risk, diversify your stock portfolio ensuring it doesn’t exceed more than 10% of your total selection.
Some of the tips to pursue when buying penny stocks:
Limit your investment and Diversify:
It is natural for you to feel excited about the possibilities of your desired penny stock, nevertheless you must protect yourself. Minimize your losses by reducing your holdings in a particular stock by 2% or less of your portfolio. Depending your appetite for risk, diversify your stock portfolio ensuring it doesn’t exceed more than 10% of your total selection.
Check trading volumes and liquidity:
Even if your penny stock investment is successful, you should still be able to sell your percentage of the shares. For this to happen, your stock must have adequate trading volumes and liquidity. Otherwise you may find yourself with only a few buyers and large wide bid-ask spreads. This would make it impossible for you to gain an actual profit from your shares.
Knowing when to sell:
Penny stocks seldom ride the stock market for a lengthy buy-and-hold investment. The penny stock sector rides on short-term trades, that’s why it’s imperative to know when to purchase and when to sell. If you make sizeable gains in a short amount of time, then consider selling them now instead of waiting for bigger gains which is likely to never come.
Look for high-quality stocks:
Some penny stock companies have more net worth than others. Good companies are those set up by experienced, industry experts who successfully left their previous companies, i.e. stocks with binomial results. Many successful technology stocks today were once trading in the single digits. Examples include La-Z-Boy Inc. and Citigroup Inc.
What’s the bottom line?
Penny stocks can be a big gamble if you don’t know how to invest in them. Despite the short-term gains they can offer, it helps to adhere to a sustainable and profitable approach such as buying shares in known companies with proven track records.
For more information about how to purchase penny stocks, visit Small Cap Firms.
