Friday, March 27, 2009

Buy Penny Stock Online

If you are going to buy penny stock online, there are a few things you should know first.

1. Online manipulation of penny stock prices

The online world, including Internet forums and e-mail newsletters / spam, can really move the penny market. Because of the obscurity of most of these stocks, and the fact that they don’t have the same reporting regulations as bigger stocks, the penny stock market can be heavily manipulated or just plain moved by online rumors or spam e-mail sent out to bought or compiled lists of possible buyers or sellers. (Don’t get caught up in the “pump and dump” hype!)

2. Research your broker before you buy any penny stock

Everywhere you look nowadays, you’re hearing about financial fraud. Bernie Madoff, sketchy bank dealings, shoddy online brokers, etc.

Well, guess what? Penny stock brokers operate in a much darker world than those big players. There is less regulation in the Pink Sheets and OTCBB, because the government has an attitude of, “If you want to go play with the wolves, fine, but we’re not going to waste tax-payer dollars protecting your wild adventures.. Good luck.. Tax you on the other side!”

3. Research the **** out of any company before you buy penny stock online

I have talked about the lower regulation requirements on the OTCBB elsewhere, but it bears repeating. These companies do not have to meet such stringent legal requirements in order to trade on the penny bulletin board. That means that you have to do 5 times the work before you invest in these micro-caps.

This is an especially good are of investing to actually go to the factory or office and talk to the owners, the managers, salesmen, or their customers, as is suggested by the late-great stock-man Phillip Fisher in his Scuttlebutt method. Penny stocks are a wasteland, like the Old West. Few will probably emerge victorius, aside from the many insider scoundrels selling you the dream, or the ax-pick, if you get what I mean.

4. Invest with the same principles you would use investing in a large-cap stock

When buying penny stock online, through an online bulletin board like the OTCBB, do not abandon your principles. If anything, you should magnify your principles. Many penny stock investors, when they are first starting out, treat this market as if they were going fishing: “I’ll just cast my line out there and see if anything bites.. Afterall, all I have to lose is a few pennies!”

Ha! Whatever you have to lose in this sort of speculation is also what you have to gain. Money is no joke. It feeds the world, it waters the trees. Why would you want to throw even a penny away to some shady shark?

Go ahead and buy penny stock online, but be smarter than smart before doing so. There’s no doubt countless real, profitable companies behind many penny stocks but you must have a lot of confidence about what you’re buying before dipping your toes into these shark-infested waters. (Once they get your toe, they can pull the rest of your body underwater and eat you at their leisure – through such mechanisms as leverage or gamblers’ addiction.)

5. Nevertheless, buying penny stocks online can be profitable

Buying penny stocks online can certainly be profitable but it takes a certain special mind to wade through the murky waters. You will have to ignore a ton of information which is only a thinly veiled pump and dump scheme, where promoters drive up the price of the stock temporarily through hyping it to unaware amateur speculators, and then sell it short and cash in on the “stupid” public’s huge “penny” losses.

If you can become aware of these sorts of schemes populating the online penny stock market, then you may have a shot at making a profit. Follow the previous 4 tips in this post, and apply them and your specific principles of investment to any individual issue you take a fancy to, and then find an online broker who is not just out to game amateurs. It will take a lot more work to stay reliably up to date on the news that you need to know when to get in and out of your trade. And you may have to stomach a certain amount of illiquidity in the market, and maybe even more volatility than you are used to. This is why the only way to buy penny stock online is to apply the age-old principles of fundamental analysis on each individual company.

Saturday, March 21, 2009

Top 2 Stocks to Buy in 2009

The recession of the past year has cleaned the stock market’s clock, creating an overwhelming amount of appealing stocks to buy. Here are my two stand-out favorites.

#1 Stock to Buy in 2009: Google (GOOG)

I bet you found this page through Google, eh? If not, you probably used the company’s search engine within the past 24 hours. I have to admit, Google is my favorite stock to buy in 2009. I believe it is the pre-eminent company in the world today, one with vast capabilities to invent huge and totally new markets (blue oceans as they like to say nowadays). Furthermore, while Google may bow down to its end-user a little bit too much, it is the Big Bully to any other company online who gets in its way or has something it wants. Like Warren Buffett, I am always looking for stocks that have that special extra something; I believe he simply calls them “great, wonderful companies”.

But no stock is worth buying if it’s not the right price, right? Google was selling near $715 in December 2007. A brief trip over to Finance shows me that you can now buy their stock for $330.16. While this is still a P/E ratio of 25, I personally have much confidence that the Big G will grow earnings better than expected throughout the next five years. They have quite a good history of positive earnings surprises, only one of the reasons they are top on my list of stocks to buy in 2009.

#2 Stock to Buy in 2009: General Electric (GE)

Even more so than GOOG, GE is embedded into your everyday life. Most of the time though, you don’t realize it. Here is a list of some areas they operate in:
  • aircraft engines
  • power generation
  • water processing
  • security technology
  • medical imaging
  • business and consumer financing
  • media content
  • industrial products
The only thing I don’t see there, that I would like to is Food.

Whether you’re watching The Celebrity Apprentice, getting an x-ray, putting an alarm system in your office, or flying to Hawaii for a one-week vacation, GE is making money off of you. So doesn’t it make sense to cash in on yourself buy buying some GE stock? Especially this year, as it has fallen to 14 year lows! It’s mind-blowing to me that this stock has fallen to such lows – they are the best diversified company in the known universe! This is the time when fortunes are made. Plant your seeds with a long-term view of the future. And like Buffett says…

“Be greedy when others are fearful.”

Ask yourself these questions: "The stock market has dropped by 50% since 2008, but has the amount of economic activity I see going on around been cut in half? Am I spending half of what I was a year ago? If I still have a job, am I being paid half of what I was last year?"

The answers are probably no. And what does that mean? That it’s time to buy stocks. The government, however inept it obviously is at meddling in the affairs of the market, cannot and will not (cross your fingers) let the recession become a depression. Obama needs business to profit. I know I am ready to buy stocks in 2009, and to ride the market back up when sanity soon returns.

Sunday, March 15, 2009

Buy Penny Stocks

It’s every investor’s dream: to buy penny stocks which eventually grow to become, well, worth a whole hell of a lot more. But buying penny stock is also well-known to be fraught with danger, at least to the uneducated buyer.

Definition of a true penny stock

Don’t listen to anyone who tells you that a penny stock is any stock trading below $1 (or, for pennies). This is absolutely not true, and by this definition Citibank would’ve qualified as a penny stock as recently as last week when it dipped below a dollar. And Citi is definitely not a penny stock.

You need to look at the market capitalization of the company as a whole before you buy stocks, not just the price for one share, which is really almost totally irrelevant to anything. A true penny stock is traded over-the-counter (OTC) as opposed to being listed on any major exchange. Its company will currently not be worth all that much; maybe $30 million, maybe less. But the fact that it trades over-the-counter is really the single best definition of a real penny stock.

How to buy penny stocks

The fact that the stock trades OTC makes it quite a bit tougher to buy penny stocks. And more expensive! You will have to pay anywhere from 25% to over 100% over the quoted price of your penny stock, which means that if you want to buy one share of a penny stock worth $0.50, you could pay anywhere from $0.63 to over $1 for that share.

Many online brokers won’t buy penny stocks for you, and you may have to go through an actual “real-life” broker who deals in OTC stock or do further research into access to the OTC bulletin board (OTCBB) where many of these stocks trade.

A word of caution before you buy penny stocks

Because penny stocks trading on the OTCBB do not have to meet the same rigorous requirements that companies trading on major exchanges do, it can be very risky to buy penny stocks if you don’t really know what you’re doing and who you’re doing it with.

These companies don’t have to meet minimum standards in order to remain trading and there is a lot of “backroom” manipulation of penny stock. Don’t get taken for a ride. Always do your due diligence and then do it again before you buy stocks, wherever they trade over-the-counter or on the NYSE.

The lack of liquidity that obviously exists in the OTC market is an obvious downside, all other things equal. You don’t have to be that big of an investor to drive the price of your own stock down by selling! That’s not the kind of power we really want, is it?

Also, watch out for new listings or startups. There exists a lot of irrational hype for penny stocks out there which can be magnified when you can’t even access the company’s past performance because it doesn’t exist.

All this said, it’s a verifiable fact that some stocks do rise from the penny stock level into what I would call micro-caps, on into mid-caps and even large-caps. You can buy stocks of any size and make a profit. Maybe you have investing in your blood. Maybe you're a natural-born stock picker. Maybe you are the next Buffett ;-) Someone's got to be. I don’t mean to put out your (or my) dreams to buy penny stock that soars; I wish us well.

Buy Stocks Online

Want to buy stocks online but don’t know where to start? I know from personal experience that it can be a little intimidating to try to sift through all the online stock brokers on the Internet, but their prices can’t be beat, so it’s worth a little investigation.

The brief history of buying stocks online

As time has passed and online discount broker competition has continued to heat up exponentially, we the stock-buying public have been the beneficiaries. Minimum accounts, commissions, other fees, all have trended downward consistently over the 10 or so years that it has been possible to buy stocks online. At the same time, the increase in online brokers has made things a little more complicated in determining who you’re going to invest through.

(Some investors even buy penny stock online. They are either the brave or the stupid, depending I guess on the outcome of their "market speculations". That is not the focus of our topic here, though.)

Is it safe?

Is it safe to buy stocks online? Yes, it is. Your account is insured up to $500,000 by the Securities Investor Protection Corp (SIPC). This is the same protection you would receive if you were to buy stocks through a “normal” broker. Understand that any online broker big enough to advertise is legit and has had to pass through stringent examination and continues to have to do so in order to be allowed to buy stock with your money.

Who are the best discount brokers?

This is too complicated a question to get into in detail in this post. You should take a look at the very helpful Stocks For Dummies for many insightful beginner hints on trading the stock market. I also suggest you visit the companies’ pages before you buy stocks online through them. Take notes, compare, and think about how you plan to invest. Are you going to be buying stock daily, weekly, monthly, quarterly? What amounts will you be purchasing at a time? Do you need to have access to small-cap or obscure stocks? Online brokers may or may not be able to buy those stocks for you. Each discount broker caters to a little different type of investor (or trader).

In the meantime, you should check out these 5 discount brokers and see which one seems like the best fit for you:


As is always the case in investing, the ancient axiom “Know Thyself” is particularly important in selecting an online broker. You will have to determine what will be your most likely style of buying and also who will serve you best, for the least. But then again, over-thinking can morph into paralysis. So be wise when you buy stocks online and avoid Pink Floyd’s “10 years have got behind” curse.

Why Buy Stocks?

Are you ready to buy stocks? To jump into the greatest passive wealth-building venue available to you, i.e. the ownership of companies through the stock market? I hope you are, because when you buy stocks you are holding assets which have exponentially outperformed all other investments over any long-term period within the last 200 years.

Maybe you are a bit anxious to invest in the stock market since as of this writing it has plummeted some 50% over the past year. If so, I think it would be helpful to consider this quote from the American economist and risk expert, Peter Bernstein:
Stocks must remain “the best investment for all those seeking steady, long-term gains” or our system will come to an end, and with a bang, not a whimper.

The richest man in the world, Warren Buffett, has done nothing but buy stocks – and this is how he has gotten wealthy. As he recently said, “I have no talents myself, so I found a way to leverage others’ talents [by buying stocks].”

I have never seen any better reason to buy stocks than this graph, which appeared in Jeremy Siegel’s great primer on buying stocks, Stocks for the Long Run:

Note that the graph is vertically logarithmic, and that the $12.7 mil that stocks would have grown to since 1802 is almost 700 times larger than the $18,235 returned by bonds over the same period. An emphatic reason to buy stocks!

Unless you are a super-talented and in demand worker on the order of a Michael Jordan or Madonna, the best way to make a lot of money has always been to own a company or companies, and thanks to the stock market, you can do this without even ever having to step foot on the grounds of that business. You can just buy stocks.


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