For 30 years, an obsession for fast, high profits in penny stocks and small-cap stocks stormed. It started just a few decades ago, but in many ways, it’s as old as human nature. It’s a piece of history that fascinates all investors.
The penny stock markets have always amazed me. Small-cap stocks are such an integral part of our economy, our jobs and our financial futures. Yet the average investor has very little knowledge as to how it works. One would think that such a significant aspect of our investment knowledge would have been taught to us in school, yet we walk away with only basic economic concepts.
The average investor sees Michael Douglas in Wall Street or Kevin Spacey in Margin Call and thinks investing has to be a multimillion dollar investment or insider trading secrets. Never could they be more misinformed. Then again, Fox News has had a way with brainwashing Americans to believe the sky is falling for over a decade now. The sky hasn’t fallen, Occupy Wall Street did not close the NYSE, and investors and penny stock investors alike are making money, lots of money.
The fundamental fact is that because so many investors know little about penny stocks to buy, investing in penny stocks can be a daunting and, in the case of Bernie Madoff and most recently MF Global, be a harmful experience. So much relies upon what little knowledge investors have already accumulated, yet investors who buy penny stocks still aren’t where they want to be. Understanding the penny stock and small-cap markets and how they operate can help the average investor with $500 to $1,000 to speculate with make investment decisions with a little more confidence.
As an avid sports fan, the penny stock market can be compared to the Superbowl, FA Cup, World Series. There are two teams, announcers, an audience and a plethora of other mechanisms that tie the concepts together in similarities. In the penny stock market, there are buyers and sellers. These can be likened to the two teams playing each other. The two teams play against each other and only one will win. The underlying truth to the penny stock market is that in order to buy a stock, someone has to sell it to you. It also means that the seller thinks no more profit will be extracted from it while the buyer thinks there is still potential. One is wrong.
The announcers are like Wall Street, calling the play by play and reporting on recent happenings. Actually, add in all the stock promoters paid compensation to market a stock into that mix also. They sway between enthusiasm to exhaustion, depending on what is happening in the moment. Yet as on the ball as they may seem, they cannot be relied upon to accurately predict the long term outcome. The only things they do are broadcast and sometimes point out random facts.
The audience can be likened to index funds; they’re just there to watch, be at the game, and win over time just for being there. They don’t really see any immediate benefit besides exposure to the game.
With all the basic components of the penny stock market described, it’s time to focus on the game itself. While a typical Superbowl, FA Cup or World Series game lasts four quarters, two halves or nine innings accordingly, the penny stock market is game that doesn’t end. The winners are determined depending upon the individual time horizon of the players on each team.
So if you are buying Pacific Ethanol (PEIX) for a long term investment and it drops in the short term, you haven’t lost the game yet until your time horizon has been reached. This allows there to be multiple winners and losers all simultaneously, making the game a little fairer to the participants involved.
Also, unlike the Superbowl, FA Cup or World Series where only one game is played, there are many games being played all at once in the penny stock market, depending upon what penny stock you are investing in. Each penny stock has its own game being played. So there is the Sebring Software (SMXI) game being played alongside the BioFuel Energy Corp (BIOF) game and so on and so forth. As an penny stock investor, you will find yourself playing in different games on all different teams depending upon the position you’ve taken in your investment portfolio. Some investments you may feel are going to be winners making you a buyer, while some you may feel is going nowhere or down, making you a seller.
The final, and most important similarity that the Superbowl, FA Cup or World Series has with investors is that each team has a coach. Investors rely on good coaches, financial advisers who are there to guide and review which plays are best suited to make in order to reach the determined goal, a financially secure retirement. Always consult with a financial adviser before making any investment into the penny stock market and make sure you know which trades you are executing with your online broker. To find out more about how to trade correctly, visit AimHighProfits for more information.
This sort of competitive play goes on in all the different markets associated with the stock markets and it is up to the investor to decide what games you want to be in and what your role is going to be. Are you a player, a back office manager, or an audience member? It depends upon your strengths and comfort level in the games you are a part of.