"Rule number one is don't lose your money. Rule number two is don't forget rule number one". (Warren Buffet)
Almost every year, a few penny stocks emerge from obscurity to make huge profits for their investors. Penny stocks which soar in value are often in "hot" industries; industries perceived as fast growing and offering great future potential. In recent years, "hot" industries have included mining, energy, health care, and high tech. Penny stocks can be extremely lucrative when they work out. However, the risks are very high. The vast majority of them fail for various reasons. Generally, playing penny stocks is more gambling than investing.
However, if you are determined to pursue the potentially huge profits penny stocks occasionally deliver and are willing to take the big risks; here are a few tactics I suggest for your penny stock portfolio.
1. Don't invest if your personal life is troubled. The market provides very expensive therapy.
2. Use a separate gambling account to buy penny stocks. This is money you are fully prepared to lose. It is money you will never need for your living expenses, family needs, emergency funds, retirement savings etc. Never mingle it with your regular investments or other accounts. Limit your gambling account to a tiny percentage of your liquid assets such as 1% or less.
3. Use stop loss orders religiously to help limit losses or protect profits. They can be a useful tool, however stop losses will not protect you if your stock loses much of its value or becomes worthless.
This is an example of how they work:
You buy ABC stock at $10 per share. You place a stop loss at $8. This means that if the price of ABC declines to $8, your stop loss order will become a market order and ABC will be sold at $8 or the best available price. However, there is NO certainty of the price you will ultimately get. In a fast declining market, ABC could sell for FAR less than $8. If ABC becomes worthless, your stop loss will likely be unfilled and you will receive nothing for your shares.
You can also use stop loss orders to protect profits if your stock rises in value. Some exchanges do not accept stop loss orders.
4. Never pyramid your profits to buy more stocks.
5. Let your winners ride. Raise your stop loss orders in an attempt to protect your profits. Don't sell just for the sake of taking a small profit.
6. Never buy penny stocks on margin (borrowed money).
7. Invest in companies based on simple ideas, products or services. As legendary investor Peter Lynch put it, "Never invest in an idea you can't illustrate with a crayon".
Almost every year, a few penny stocks emerge from obscurity to make huge profits for their investors. Penny stocks which soar in value are often in "hot" industries; industries perceived as fast growing and offering great future potential. In recent years, "hot" industries have included mining, energy, health care, and high tech. Penny stocks can be extremely lucrative when they work out. However, the risks are very high. The vast majority of them fail for various reasons. Generally, playing penny stocks is more gambling than investing.
However, if you are determined to pursue the potentially huge profits penny stocks occasionally deliver and are willing to take the big risks; here are a few tactics I suggest for your penny stock portfolio.
1. Don't invest if your personal life is troubled. The market provides very expensive therapy.
2. Use a separate gambling account to buy penny stocks. This is money you are fully prepared to lose. It is money you will never need for your living expenses, family needs, emergency funds, retirement savings etc. Never mingle it with your regular investments or other accounts. Limit your gambling account to a tiny percentage of your liquid assets such as 1% or less.
3. Use stop loss orders religiously to help limit losses or protect profits. They can be a useful tool, however stop losses will not protect you if your stock loses much of its value or becomes worthless.
This is an example of how they work:
You buy ABC stock at $10 per share. You place a stop loss at $8. This means that if the price of ABC declines to $8, your stop loss order will become a market order and ABC will be sold at $8 or the best available price. However, there is NO certainty of the price you will ultimately get. In a fast declining market, ABC could sell for FAR less than $8. If ABC becomes worthless, your stop loss will likely be unfilled and you will receive nothing for your shares.
You can also use stop loss orders to protect profits if your stock rises in value. Some exchanges do not accept stop loss orders.
4. Never pyramid your profits to buy more stocks.
5. Let your winners ride. Raise your stop loss orders in an attempt to protect your profits. Don't sell just for the sake of taking a small profit.
6. Never buy penny stocks on margin (borrowed money).
7. Invest in companies based on simple ideas, products or services. As legendary investor Peter Lynch put it, "Never invest in an idea you can't illustrate with a crayon".
