Buying penny stocks doesn't have to be hard…

Before jumping into the deep end of penny stock investing, we should give a short summary of what penny stocks are and what sort of investors should be looking at them. If you were to look up the definition of penny stocks online, you would find a lot of different variations. Some would refer to the stock price alone, the market cap or where the company shares are trade. For a slightly comprehensive definition penny stocks are stocks priced at less than $5, with a company market capitalization of less than 5 million and are traded over-the-counter or in the pink sheets. That was a mouthful. Now, lets get started with the more interesting facets of penny stock investing.

Smart investors always start at the same place – research. Once you have figured out the amount of funds or the percentage of your portfolio you are going to allocate towards your penny stock positions, its time to scout for a few companies which merit more in-depth research. This is probably where a lot of newbie investors stumble. They get lazy and buy the first ‘hot’ tip that comes there way. That is definitely the wrong way to go about this. Any ‘hot’ tips from now on will go into a folder on your desktop or in a physical manila folder marked ‘For further research’. This is where you will track companies that are worth some investigation. There are few places to start looking for tips or company names:

Screeners

Before you buy your first stock, we recommend looking at 10 different companies first. This will help you figure out the process that works best for you. For some screeners we recommend looking at MSN stock or Yahoo Finance screeners. They will filter out stocks based on your criteria of price, market cap etc.

Alerts

You can subscribe to alerts such as those provided by google news for the key phrase ‘penny stocks’ or ‘hot stocks’. Monitor these alerts for a week and you will come up with a list of websites that offer alerts for free. Most of the time these websites also have additional buy/sell strategies for stock investing. If you like the content and the tips/strategies work for you, look into any paid subscription options they provide.

CAPS ratings

The CAPS is the community of investors of fool.com who rate stocks and talk about different companies on their message boards or their website. This is a great screener because you can leverage the collective intelligence of all these investors. The ratings are on a 5-star scale with 5 stars being the highest and 0 stars being the lowest.

The above strategies are a great way for you to get started. So what are you waiting for?