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Penny stocks are those stocks that trade below $5 per share. Although these are the cheapest stocks in the market, and they are also the easiest to own because of their cheap price, most financial advisers and long-term investors opt not to buy penny stocks as much as they could, because these stocks are extremely risky to invest into. Penny stocks generally tend to fluctuate wildly when it comes to price. However, there are some success stories that are also involved with penny stock investing, and the important thing is that we know what we are doing, and we know what are the stuff to avoid.

General overview of penny stock investing.
Trading the over-the-counter (OTC) markets can really be a profitable business venture only if done correctly. Sensible strategies, along with strict discipline, must be applied seriously so to avoid the risks that are involved with these kinds of stocks. It is essential to learn the universal principles in trading penny stocks, to have a plan, and have a direction.

First of all, we must understand that the OTC markets work very differently from other markets such as the NYSE or the NASDAQ. This is because most companies traded on the OTC are usually much smaller and so they are much more volatile.

Which penny stocks to buy?
Deciding on where to put one’s capital is very critical; thus, this must be done with fundamental and thorough research. Getting updated and always scouring for news releases about stocks and the market is always helpful in choosing which stocks to buy.

When it comes to investing in stocks, including penny stocks, timing and momentum are two of the most important things to master. The greatest builders of momentum on the penny stock market are company promotion and advertising campaigns. These campaigns increase investor awareness, and then buyers will buy the stocks when they like them through reading the ads. Thus, we must know when to get in, make money, and then get out.

Mistakes to avoid.
First, we need to make sure that we don’t invest or trade the money which we cannot afford to lose. Since penny stocks are very volatile, they can have major changes in prices, either positive or negative, in just a short period of time. Trading is also like gambling — nothing is guaranteed. So we must trade the money we cannot afford to lose.

Never trade without a plan. A plan is a must before starting on any kind of investment. Knowing the reasons for trading is essential so to be able to find out if such reasons are still standing, or when it’s time to exit from the investment. Also, void trading without stops. A trade, especially with penny stocks, must have a stop-loss order. This is a good way to limit the amount of loss on any one trade.

Overconfidence must also discouraged, as this is one of the biggest culprits that destroys the trader’s capital. Few winning trades in a row must not prompt the traders to think that they have worked out the markets and forget about their plan and discipline. We must never get greedy and look at the long-term benefits of following our rules every so often.

In the aftermath of the global financial crisis, a growing number of US baby boomers are broadening their perspectives beyond US borders. In the face of spiraling health insurance costs, scrambled nest eggs and a rising cost of living, many are finding that their best option for a comfortable retirement is to head to a country where their dollars will stretch further. And that means heading further south than Florida.

Countries like Costa Rica, Belize, Panama and even Nicaragua are starting to look like promising alternatives. Real estate is affordable – see information compiled by RevealRealEstate on Nicaragua for example, the cost of living is far lower than in the US, health care is improving (although is still fairly limited away from the larger towns), internet connectivity is widespread, and it’s only a short direct flight from major US airport hubs to the capital cities of the region.

According to the Social Security Administration, the number of retired Americans receiving benefit payments overseas has risen by 32% since 2002. That percentage could rise further, especially as more counties roll out the welcome mat for US retirees. Panama, Nicaragua and Costa Rica for example have well developed retirement residency programs that provide tax benefits and incentives. Foreign citizens are typically not taxed on global incomes and can import households goods tax free into the country. Panama’s program goes one step further allowing discounts for retirees on a number of medical, entertainment and travel expenses.

But despite the attractions, there are still risks involved with a move abroad, particular when it comes to buying property. Retirees are often taken aback by the murkiness or lack of transparency of the real estate markets. For example, many expect to be able to a access a central database much like the US Multiple Listing Service, that tells them how long properties have been on the market and how prices have moved. But that kind of information is simply not available. Smart investing in many overseas markets means relying less on your real estate agent and doing more of the legwork yourself.

The most successful investors purchase in areas located “in the path of progress.” Locations where tourism is on the rise, infrastructure is improving and amenities are arriving. But it can be tough to get the timing just right. To reduce your investment risk it may be worth steering clear of off-plan investments and focus on completed property. In the current market, where buyers still remain firmly in the driving seat, there are great bargains to be had. US buyers who look hard enough should be able to purchase completed property at pre-construction pricing

A successful life abroad requires an adjustment process and an acceptance that things are done differently (and generally take longer) than back home. For many retirees, that’s a low price to pay for the financial benefits of a move abroad. They’ve done the math and found that its possible to have a luxurious retirement for under $1,500 a month. With those kind of numbers, the trickle of US retirees moving offshore may develop into a stream.

Every time I look at micro-cap stocks, I realize that good things often come in small packages but you have to look at many  small packages in order to find one good one. With more than 9,000 securities being traded knowing how to find the best penny stocks to buy now is difficult especially since the major research houses and wall street gurus do not often delve into the muddy waters of micro-cap stocks.

Micro-cap Companies and Index Reporting

While the Wall Street analysts overlook most penny stocks, many of the stocks that are traded on the Over-the-Counter Bulletin Board (OTCBB) or on the Nasdaq exchange, will be recognized as familiar names to many investors. These companies are identified by having less than $300 million in market capitalization. Micro-cap equities carry significantly higher risks than other stock classes but those stocks which the Russell Micro-Cap Index track have outperformed the Standard & Poor 500 and the Russell 2000 index for more than 5 years.

Fundamental Analysis of Penny Stocks

Searching for diamonds in this field is tough since there is little regular research available from the normal research channels. It requires time, effort, and a slightly different focus in order to develop your own intelligence on a micro-cap company. These stocks do not always trade at their full value, which creates opportunities for investors who know what they are looking for in a micro equity.

All the normal ratios and numbers are present. Things such as current price, price/earnings (PE) ratio, 52-week high/low ranges, and you can look at these to see if the normal valuations provide a glimpse of a winner. You will also look at the company’s balance sheet to see whether or not they have an inflow of cash or if the company is burning cash to stay alive. However, the reality is you will probably not find good numbers that you may be used to with other types of equities. Earnings will probably be negative and there will usually be negative numbers when it comes to shareholder equity. Although these negative numbers may be the early signs of a company that is experiencing extremely fast growth.

In order to make a good decision about most stocks you spend your time uncovering and analyzing historical performance. With penny stocks, you must turn the tables and spend most of your time looking forward for the company and its future holds. You have to understand the strategy that the business is undertaking; you must know that the management team is suited for the challenge and that the industry in which the company operates is a growing sector.

Many small companies find that the minute they file a financial statement, the statement is no longer valid. That is how rapidly these small companies change. However, all companies trading via the OTCBB are required to file statements with the SEC. Companies are provided some leeway on meeting the required filing dates but after repeated delinquent filings or extended periods of missed deadlines the company will be removed from active trading. Companies that consistently miss the filing deadlines or miss other auditing issues should not be considered as quality penny stocks.

Three Questions That Make a Difference

When doing analysis on a company in this arena, there are really only three important questions that you must have answers to in order to make a good decision. These questions are:

1. Does the company have a product that is unique in the industry or is so compelling as to draw attention to it?
2. Have they developed a process or improved a process that sets them apart?
3. Regardless of economic cycles, will the company or its products be in demand for the near future?

Developing the skill to analyze penny stocks requires time and experience to learn. Individual investors often have a hard time coming up with original information in order to make quality decisions. That is where experience comes into play. Micro equities often start fast and burn out even faster. Often using a dedicated research service that is dedicated to working with the vagaries of these investments is a good investment. They often have the resources and industry specialization to make good decisions. ETFs (Exchange Traded Funds) are also a good alternative and often safer than individual stocks.