How to Invest in Penny Stocks


Before you invest in penny stocks be prepared mentally for the worst- your money going down the drain. On the flip side, you may hit a jackpot if the company’s product gets accepted in the market. Large holdings in penny stocks are the key to your profits or losses.

Penny stocks, by nature, are generally illiquid with low traded volumes. They are also known as micro caps because of their low market capitalization, precisely why they are traded on the OTC (over-the-counter) market. As they grow in size they graduate to the more recognized, high profile markets like the Nasdaq or NYSE.

These stocks are difficult to research and evaluate because there is little current information available on their fundamentals and are regulated more by exception than as a rule. It is for this reason that they are more susceptible to manipulation and price rigging by management and their associates. Investors are often lured into investing by analysts/tipsters making tall claims about their appreciation potential.

Exercise caution while investing in penny stocks. It is advisable to invest in stocks which are available on the bigger exchanges as they are subject to tighter surveillance and disclosure norms.

Here are some suggestions to minimize your risks in buying penny stocks:

– Monitor the prospects of these companies at regular intervals with an eye on news, events and the industry in which the company is operating

– Keep a strict limit, between 5 to 10 per cent of your portfolio value, for penny stocks.

– Penny stocks have been found to be very active in the last leg of a bull market. This is because at this stage the large caps, mid caps and the small caps have already reached saturation levels and have little room for price appreciation. In other words, market pundits tell us, the surge in penny stocks is a sure sign that the market is peaking.

– Book profits at the first available opportunity (a 50 to 100 per cent gain should be enough). By booking 100 per cent profits on 50 per cent of your holdings in a stock you are able to reduce the cost of your residual holdings to zero. It then becomes a risk-free investment.


REAL GOODS SOLAR (NASDAQ: RSOL) – Real Goods specializes in residential and commercial solar energy systems of 100 watts to 100 kilowatts output. Its 52-week high and low prices are $ 6.78 and $ 1.42 respectively. The share closed at $ Web Site:

www.realgoodssolar.comURANIUM ENERGY (AMEX: UEC) – is a US-based resource company with the objective of becoming a near-term ISR uranium producer in the United States. The company has recently been listed as a preliminary addition to the Russell 2000 Index and the Russell 3000 Index. Its 52-week high and low prices are $ 3.45 and $ 0.16 respectively. It closed at $ on July 15, 2009. Website: It is a fact that investing in penny stocks is fraught with extraordinary risks. Adventurous investors do not mind allocating a small portion of their portfolio to penny stocks. With risk comes an opportunity to make a windfall gain.