Picking your Penny Stocks

Since this is the genre of investment that comes with high potential as well as high risk, it is imperative that you pick well. Your choices alone will be the difference between massive overnight losses and sudden windfalls. Even the most premeditated decision isn't guaranteed to be successful but by taking certain precautions when picking your penny stocks, you can definitely minimize overall risk.

(I)Go for listed penny stocks because they're simply safer to deal with. Listed stocks provide security in the fact that they had to meet certain financial criteria before the major exchanges listed them. NASDAQ and the New York Stock Exchange have an extensive database of stocks below $5 (penny stock.)

(II)Evaluate track records; revenue, earnings and the like. Companies that can provide a long history are less likely to be frauds. Brand new companies sparkle with their 'youth' and features but realistically speaking, new companies aren't worth very much. If one interests you, it would be safer to keep an eye on it over time before deciding to invest. You also need to track penny stock with constant percentage gains.

(III)Look for features that add value to company such as unique goods and services or patents. Patents add value to the company, especially the longer-standing ones. Reputation is one such value-adding feature. Running a web search is a quick way of doing this, even isn't completely accurate. Penny stocks traded in bulk are more valuable, even if they're cheap.

(IV)Look for liabilities. Companies with in debt or with debt records might just be selling penny stock to make money before they crash. An ideal company would have enough money and assets to function well for the next year or so.

(V)Look for penny stocks that come from emerging or fast-growing industries. These will be listed in all major financial journals and magazines such as 'Fortune' and 'Forbes.' This year (2009) the top 500 industries listed by Fortune had its champion stocks centered around the petroleum industry.

(VI)Select your budget, deciding how much you're willing to invest in penny stock. Most traders allocate about 10% of their total investment fund to penny stock. Remember the golden rule: don't risk money you can't afford to lose.

(VII)Use newsletters. They're a great way to pick out competitive stock without having to sift through pages of information. See what the financial authorities recommend. Both Forbes and Barron's for example, recommend pennystock.com. Be sure to check out the informant's trade portfolio before deciding to trust them.

Suggested Penny Stock Newsletters
www.PennyStockChaser.com
www.scottrade.com
www.drpennystock.com
www.pennystock.com

When sifting through newsletters, watch out for bias. Some websites are paid by companies to promote certain penny stocks. Bias is quite easy to detect if you run a quick background check on the penny stocks advised. Yahoo! Finance is a hassle-free way of running such checks.