Take some time grazing through the business or investing section of your favorite local bookstore and you'll discover that virtually every literary business or stock guru has some great secrets (some simple...some not) that (apparently) can help you bust the penny stock market wide-open.
For example, Warren Buffett advises: First, don't lose money. Second, never forget rule number one. And Third, wait for the perfect investment and do nothing until then.
Ben Graham (Warren Buffett's teacher) advised to buy stocks below working capital or below working capital less all debt. Peter Lynch used to say, follow the earnings. If they rise, so too will the stocks.
Seth Klarman suggests you have two things: guts and patience. For that is what you will need to withstand the market panics and plunges; which is when Klarman recommends you buy.
The market, he says, is fond of making mountains out of molehills and making regular business setbacks appear as catastrophes. Meaning... the vast majority of penny stock panics are overdone. In fact, that is when Klarman says you should buy.
What if there are no panics to buy into? You must have patience. And yes...that is easier said than done. While "guts" are recommended...how many of us really have what it takes to buy penny stocks in the midst of crashes, disaster and downturns? I certainly do (on occasion).
Though really... who knows how far a downturn can go? Timing is equally as important. Buy a penny stock too soon and you risk some financial embarrassment. Hmmm...embarrassment now, versus potential gain later.
No matter how you slice it...scandals and disasters do open the door to potential bargains. Where to find the bargains? It may sound simple... but watch the news... read the paper. Do your own due diligence and ascertain whether or not the market over reacted and what the bottom price is you're willing to pay.
As one analyst opined, "If you can do that, you can make money when everyone else is losing their heads."
Have a good sense of what you're looking for and be honest with yourself about your own financial knowledge. Be realistic in your expectations of profit and return. It's easy to get carried away when things are flying high... and to panic when they fall off abruptly. Trust me.
While this may seem pretty obvious...it never is when you're in the heat of the moment. And for penny stock investors that are accustomed to market volatility...those moments are not as rare as you might think.
Still, after everything's said and done...when it comes to penny stocks...there's never reward without risk.
A seasoned investor with a keen interest in international business and current affairs, John Whitefoot has been working alongside Peter Leeds for the last several years. With over ten years experience in the investing community, Whitefoot is devoted to uncovering the news, trends and ideas that shape penny stocks on a daily basis.
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