Online stock trading with penny stocks can make you a fortune. Famous investors like Warren Buffet or Andre Kostolany made millions by investing in promising companies while these were still small.
Most stock market beginners have the wrong approach to penny stocks though. They buy them because they look cheap. The shares just cost a few Dollars or Cents, how can that money be wasted?
Actually, most money which is flowing into penny stocks is wasted. One reason is that many penny stock companies are bad companies with bad management, zero earnings and bad outlook. It is a sad fact that most of these companies will disappear. It is also a fact that there is a lot of fraud going on in this market. There is a lot of hype, misleading information and penny stocks get pumped and dumped every day for different reasons.
The idea of a young and small company to go public to get some money is still great. How else could a company finance its ideas? But this is exactly how you must approach the penny stock market as an investor. Check the management, the people behind the company. Do they have the knowledge and experience to make this company succeed? How are their financials looking, their business plan. Does it all make sense?
You will be surprised how much information you can get about a company and their management in the Internet. Do not just rely on the information the company gives you directly from their web site. Fraudsters are quickly identified because it is probably not their first bad deal they did.
Look at the business idea, the product or service they want to sell. Do some research, contact established competitors and try to get information about the market. Get data from third parties.
Penny stocks are popular because you can make a fortune with little cash investment. But you have to invest some time and work to find the gold nuggets. Do not look at the price of a stock. With just $1,000 to invest you could buy 1 or 2 Google shares or 100,000 shares of a 1 Cent penny stock. Which one will you make more money? This is the question to ask yourself.
Ignore share price when dealing with penny stocks. Look at the company instead.
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David A. Sorenger is an expert author on stock market related topics. His articles about stock trading, online stock brokers, stock options and penny stocks have been published on numerous web sites, forums, blogs and e-zines all over the Internet.