Penny Stocks A guide for beginning investors

The Nature of Penny Stocks

For anyone new to investing in penny stocks, you should first be made aware of the differences between these micro-cap stocks and the more conventional blue-chip and mid-cap investments. Unlike buying shares in a large, stable company like Ford or IBM, you are dealing with speculative investments.

Penny stocks literally trade for pennies per share, or for as much as a couple of dollars. The beauty of penny stocks, of course, is that sometimes they ‘grow up’ and become mid-cap stocks, multiplying in value hundreds of times over and making many people very wealthy.

With penny stocks, also called micro-caps or juniors, you will see much greater price volatility, and thus greater and quicker gains and losses in asset values. It is precisely this volatility which draws investors to the junior markets, as one good pick could make you hundreds of times what you could ever make on the larger markets.

Of course, there is more risk than buying bonds, blue chips or defensive stocks - but this added risk is tempered with the possibility of making the big gains.

Most penny stocks, but not all, are resource or technology companies who initially sold shares in an effort to raise money for exploration or product development programs. Many of the companies have large debt loads and are not necessarily making more money than they are losing.

However, it is the potential of a major, or even minor success in their quest that often incites dramatic price climbs, and this is where their value lies.

Profit Potential

Modern Strategies Inc. owner of http://www.pennystockinsider.com, has been in the business of researching penny stocks for many years, and has become effective at uncovering the best small cap investment opportunities and the most rewarding profit situations in the penny stock markets.

There are several ways to profit from penny stock investments. Modern Strategies Inc. has uncovered the most highly rewarding investment situations.

Promotional Stocks - These issues may or may not have much actual value. Promoters generate interest in these types of stocks in an attempt to drive share prices higher. The promoters own great amounts of shares and so they make more money the higher the share price travels. Eventually, they sell their holdings into the promotion and generate great personal profit. Then they move on to the next project, leaving the original stock and all its investors behind. Without the work of the promoter, the promotional issue soon comes crashing down.

These are the type of stock investor hear horror stories about, because many people often lose a good deal of money when they are naive about promotional ploys. However, getting in on a promotional stock early in its life cycle, and keeping an eye on the actions of the promoter can be very, very rewarding. It's like having a full time stock promoter doing everything in his power to get the share prices of the stocks you own to go through the roof, and investors who get in early can go along for the ride!

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