Learning on the fly with penny stocks?

[Keyboard Ninja]

For some reason I woke up this morning thinking that I wanted to dabble in stocks. There are two low priced stocks that I have kept my eye on, and if they go back to their low (or close to) I'd like to put $500 into it.

If I buy it at $0.50, and I sell it at $1.00 I just doubled my money right?

Also who should I go with to start experimenting with this? I've only known about ETrade, and Fidelity but I hear there are other companies out there that might be cheaper when buying and selling. Anyone have a particular website they use?


Oh yeah...is this a decent way to learn on the go? I'm still reading, but I'd like to at least do something

 

[Keyboard Ninja]

Oh yeah....I think I was also influenced a bit by reading this article on MSN...

Don't Invest Another Penny: Motley Fool Business News: GE - MSN Money

Is the writer full of crap? Or is my FFFFX really going to cost me that much in the end?

 

[Leonidas]

If I buy it at $0.50, and I sell it at $1.00 I just doubled my money right?

Sure, but you'll probably be at less of a disadvantage tossing some money down in a nice squadbay craps game.

Putting money in penny stocks is way too much like gambling for me. It's almost impossible to find any reliable information on them and manipulators can have a field day luring in suckers to their ruin.

Not only will I not buy a penny stock, I almost never want to own a teenager. Don't think of stocks as cheap based on the per share price. It's better to compare what you pay for the expected returns, i.e. price divided by future earnings, dividends or price appreciation. You're buying an asset that you hope will make you money, so you should concentrate of how much you will be paying for that future payoff.

It doesn't take much to make a penny stock to go up, but it doesn't take much to make it plummet either. There can be days when you are grateful that zero is the lowest price that stocks can reach.

You'll find few individual stock owners on this board, so I'm sure many folks will be along to tell you about mutual funds. They're not my personal preference, but I'm just kind of weird that way. You'll also find folks like UncleMick who have a small portfolio of individuals stocks that they play with, but most of their investments are in mutual funds.

 

[mickeyd]

I'm still reading, but I'd like to at least do something

Keep reading.

 

[CyclingInvestor]

Don't think of stocks as cheap based on the per share price. It's better to compare what you pay for the expected returns, i.e. price divided by future earnings, dividends or price appreciation. You're buying an asset that you hope will make you money, so you should concentrate of how much you will be paying for that future payoff.
...
You'll find few individual stock owners on this board, so I'm sure many folks will be along to tell you about mutual funds. They're not my personal preference, but I'm just kind of weird that way. You'll also find folks like UncleMick who have a small portfolio of individuals stocks that they play with, but most of their investments are in mutual funds.

I am one of the individual stock owners here. I am 49, retired in 2006 from a programming career, and
been 100% in individual stocks since late 1993. I agree with the others here that penny stocks are not the
way to go. There is just not enough information or history about each one to do any kind of reasonable
analysis. For micro-caps, a fund is probably the way to go, and I am one of the more fund-resistant guys
here. If you want to give yourself an eduaction in analyzing stocks, buy a few shares of a couple well-run,
highly profitable companies and track them. Look up their operating histories, get a feel for their
fundamentals. Buy a few books. Start analyzing a bunch of companies over a period of time. If this sounds
like a lot of work, or sounds boring, then mutual funds are probably a better place for investmenting.
I am not saying this to discourage you, but to let you know it takes some work.

 

[cute fuzzy bunny]

For some reason I woke up this morning thinking that I wanted to dabble in stocks.

Go back to sleep and hope you wake up with some different ideas!

 

[Darryl]

Well the writer is correct that high fees will take a large chunk away from you over time so you need to manage or avoid those.
The example of 2% is extreme for people who are paying attention. I was not paying attention up until about a year ago and my expense ratio was between .75-1.00 currently it's 0.30 and dropping.
I would never buy a penny stock and I like to go to the casino occasionally.

 

[Salaryman]

Ninja, trading in penny stocks is pretty tough. Not going to stop anyone from making mistakes, lord knows I made enough of them myself....but if you must, make sure that you understand what you are getting into.

Fundamental research is important, but you should check out if the issue is the subject of SPAM, pump & dump or other efforts of some bad people looking to take money from su-kers, I mean investors.

Here's one place you can go to check for SPAM activity in penny stocks.

Qwoter - Investment Tips & Stock Market Advice - Stock Market Quotes & News

Good luck.

 

[rogersteciak]

Value investors don't care about a company's capitalization. Whether it's a megacap or a microcap, the approach is the same: determine the company's intrinsic value (if it has one), buy it on sale (e.g., half its intrinsic value), and hold it until the market finally recognizes its intrinsic value (which may take years or decades, if ever).

The advantage of microcaps is that there are a lot of value opportunities in the microcap space (i.e., there are only 500 very large publicly-traded companies in the United States, but thousands of publicly-traded microcap companies [many of which, however, could be classified as "rats and dogs"]). You just have to find the quality microcaps that are significantly undervalued, buy them with patient risk capital, and then wait for a catalyst to recognize that value.

The disadvantage of microcaps is that they are not widely followed on Wall Street. Even if you have the next Microsoft or Walmart in the making (which is highly unlikely, but still theoretically possible), there will be no institutional investors buying the shares to drive up the price. So you have to do your homework and then wait for perhaps a long period of time for the market to recognize the value that you have discovered.

If you don't want to pick your own stocks, consider a mutual fund (Google is your friend here).

I consider microcaps to be a hybrid asset class (somewhere between the liquidity of stocks and the illiquidity of private equity). I don't own any microcaps right now, but they are on my shopping list as an asset class. I intend to use a small amount of risk capital I can afford to lose (because I may lose it). If I happen to invest in a positive black swan (i.e., the next Microsoft or Walmart), then I will receive a high return. Otherwise, I will not lose too much money if I am wrong and everything I buy falls to zero in value.

 

[Nords]

Oh, you'll learn a lot from penny stocks. The tuition will cost every penny you put in, too, and maybe even a little more.

Penny stocks became that way for reasons usually involving a lack of performance referred to as the "value trap". Once delisted from the exchanges and [-]off the regulatory radar screen[/-] down in the weeds, they have insufficient trading volume (liquidity) to reliably establish a "fair" price. They're notoriously subject to manipulation by traders, shareholders, and owners.

You may find a good penny stock. You may also be able to put a paper bag over your head and run back & forth across the highway at rush hour without getting hit right away, but eventually the odds will equal the inevitable.

I've spent a decade reading and experimenting with "real money". The more I learn, the less I know. The better my performance, the harder I had to work to achieve it. The latest step in my education is an investor's group that funds entrepreneur's startups, and it's a hair-raising look behind the curtain. Even if things go well you can still get blown out of business by the unexpected, and even the experts expect that one out of every three of their (heavily researched, exhaustively studied) investments will go bankrupt.

Keep it simple and keep it from consuming all your spare time: low-cost index mutual funds and low-cost exchange-traded funds.

If you really want a big return on an investment over which you have a measure of knowledge & control, it always comes back to the "human capital" of getting a degree and getting promoted...

 

[Keyboard Ninja]

If you really want a big return on an investment over which you have a measure of knowledge & control, it always comes back to the "human capital" of getting a degree and getting promoted...

That is always the main plan until I'm done .

 

[chinaco]

Penny Stocks??

Risky!!! I would stay away.

 

[cute fuzzy bunny]

You may also be able to put a paper bag over your head and run back & forth across the highway at rush hour without getting hit right away, but eventually the odds will equal the inevitable.

Is my regular royalty check in the mail?

 

[Nords]

Is my regular royalty check in the mail?

I'd like to think that my "odds will equal the inevitable" phrase is the fresh icing on your cake...

For those who are just tuning in, my previous comment about running-across-highways-wearing-paper-bags-on-your-head was lifted wholesale from CFB's original field studies-- as the pioneer [-]survivor[/-] researcher he deserves all the credit!

 

[cute fuzzy bunny]

You forgot the part about being naked at the time. That really makes it.

 

[anes]

For some reason I woke up this morning thinking that I wanted to dabble in stocks. There are two low priced stocks that I have kept my eye on, and if they go back to their low (or close to) I'd like to put $500 into it.

If I buy it at $0.50, and I sell it at $1.00 I just doubled my money right?

Also who should I go with to start experimenting with this? I've only known about ETrade, and Fidelity but I hear there are other companies out there that might be cheaper when buying and selling. Anyone have a particular website they use?


Oh yeah...is this a decent way to learn on the go? I'm still reading, but I'd like to at least do something

There is only one thing you need to know. You will loose your a$$. They are penny stocks for a reason, low volume, easily manipulated by there promoters and boiler room traders. You will have more fun and success at a craps table.

 

[RonBoyd]

Oh yeah...is this a decent way to learn on the go? I'm still reading, but I'd like to at least do something

I say go for it. Assuming, of course, that you understand that type of investing is betting on how other like-minded [-]gamblers [/-]shareholders perform rather than what the Company will do -- also called the "bigger fool" style of investing. (Look it up.)

 

[kcowan]

We have had some good luck with <$1.00 stocks but not without doing as much DD as with more expensive stocks. One of the adavantages is that analysts don't cover them and the big funds don't invest in them. You still have to be aware of market makers though. And volatility is fundamental owing to the low volumes.

Stop losses really do not work owing to the high volatility. YMMV because it is totally different than blue chips. One of our winners funded (half) our condo purchase in PV.

 

[redduck]

Anes says: (and I wish he/she hadn't)...

There is only one thing you need to know. You will loose your a$$. They are penny stocks for a reason, low volume, easily manipulated by there promoters and boiler room traders. You will have more fun and success at a craps table.

I know it's not polite to correct spelling and grammar, but "Loosing" your ass is kind of disgusting. Then you talk about success at the "craps" table. And, just how do you pronounce your name, anyway?

 

[dumpster56]

Back in the early 80s my stupid days. Bought a penny stock Greer Sontage associates. Friend was selling stocks said big guy ya gotta get in on this. I think it was selling for 30 cents a share. Put in 300 dollars. Ended up with 25 cents. Yep 25 cents. It never went up. Ever.

 

[mickeyd]

Ended up with 25 cents.

Did they send you a check, cash, or postage stamps?

 

[dumpster56]

Did they send you a check, cash, or postage stamps?

I got it through the state of NY via a check from funds that I was due from lost money!! Last year I was looking around a website missing money.com and found out I was due something like 77 dollars. I did all the paperwork and then sent it in 6 months later I get a check from the state of NY with a list of what the money was from. It was listed along with some other small things that I guess from moving and not having the mail get to me.

 

[anes]

Anes says: (and I wish he/she hadn't)...



I know it's not polite to correct spelling and grammar, but "Loosing" your ass is kind of disgusting. Then you talk about success at the "craps" table. And, just how do you pronounce your name, anyway?

No worry, it should have read loooooosing your a$$. (as is assests.) Depending on your accent it will sound like Anes.

 

[redduck]

I would think that your time would be better spent reading about investing (if nothing else, read these boards). Following penny stocks will take more time than you can imagine. It's going to be more exciting than working on asset allocation, but in the long run, it's not going to be as fruitful--IMHO. I know of only one person who made a tremendous amount of money on a penny stock (actually, it was a low price stock) and he's given a bunch of it back. Everyone else I know that did well in the stock market had long-term plan and pretty much followed it.

That said, somewhat like unclemick, I have recently bought two individual stocks, for trading purposes, just to satisfy the hormones (mine, not unclemick's). Both of these stocks are not penny nor low-priced nor do I have much of a financial investment in either. And, I only did this after putting a bunch of money in pssst, Wellesely.

Oh, one other thing: The money you lose with penny stocks could have been growing for you for the next 30-50 years. That's a lot of time to make that money work for you. And, once you use up time, it's gone. Damn, wish I knew (and understood) that 40 years ago.