Are penny stocks good

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Are penny stocks good?
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To be able to decide if a penny stock is a good
investment choice or not will depend on your
evaluation of the stock for its risks and
rewards. Not every penny stock is created
equally. Every investor dreams of getting a good
return, but to do this you have to determine
whether the stock is simply a flavor of the day
or has long-term upside potential.
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Even if you plan to invest just a few hundred
dollars, the following tactics will help you
invest in good penny stocks
Limit and Diversify
You may get excited about your favorite penny
doing well, but you must protect yourself. You
can cap losses by keeping your holdings to no
more than 2 of your total portfolio. Depending
on your appetite for risk, you should also
consider diversification of your penny stock
portfolio. This should not exceed 10.
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Monitor trading volumes and liquidity
Even if a penny stock is giving you favorable
returns, you still need to be able to sell its
shares. To do this, the stock must have enough
trading volumes and liquidity. Otherwise, you
will end in a place where there are very few
buyers and a widely distributed bid-ask spread.
This will make it impossible to convert paper
profit into something monetary.
Timing
Knowing when to sell a penny stock is the key to
success. Most penny stocks rarely become a
buy-and-hold investment for a long term. This
sector thrives on short-term trades, so knowing
when to buy and sell is crucial. If youve
already obtained sizeable gains from a particular
penny stock, book them in now instead of waiting
for a bigger payout. In reality, this may never
occur.
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High-quality Stocks
Some penny stock companies will be better
investment choices than others. Ventures that are
set up by experienced managers who successfully
left a previous company and stocks that have
binomial outcomes are both good choices. Several
tech stocks that are trading today once traded in
the single digits. Nontech stocks like La-Z-Boy
Inc. (LZB) and Citigroup Inc. (C ) also traded
for less than a dollar in March 2009.
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The Take Home Message
Some penny stock companies are more valuable than
others. Nevertheless, all penny stocks are a
risky gamble. The only way to invest in a good
penny stock is to find a company with a strong
track record. If you want to commit some money to
speculation, choose companies that trade between
3 and 5 per share.
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