How to Buy Penny Stocks

I’m going to do my best to stick to the subject of how to buy penny stocks, but the bottom line is, any time you give me a chance to talk about trading, I’m going to go off on a bunch of tangents while I’m “downloading”. Trading is a subject that’s near & dear to my heart, because it’s such a battle with your own emotions and your own greed and fear and everything else that’s ugly about you and you don’t even know it. I bet you thought you’d never run across a site that got so “deep” into trading, huh? Well, to avoid the risk of being labeled as “psycho-babble”, I’ll refrain from talking about the psychology of trading at this point…I know you have to wait until you know me a little better before you let me dive into that topic. That’s fully understandable, so I’ll just stick to the mechanics of trading penny stocks for the time being.

So how do you go about buying penny stocks? Do you go for the fundamental information, such as earnings per share, P/E ratio, EBITDA, or all the other fancy things you might find in a company’s prospectus? I’m the wrong person to ask about fundamental analysis, mainly because I don’t believe it can be relied upon, to ANY degree. Think about it: A company’s fundamentals are only as good as the people who report them, and if the people who report them are “cooking the books”, you’re screwed, because you’re basing your investment decisions on false information. How many times have we seen this happen in recent years? Think Enron, Tyco, and so forth. Think of all the wildly touted tech stocks during the bubble of the late 90’s & early 2000’s. It was all based on “sound fundamentals”. Wall Street was singing the praises of tons of different tech stocks, and meanwhile, the insiders were selling out like there was no tomorrow, and for many of the companies, that was the truth—they were literally there one day and gone the next. As a result, many of these companies inadvertently ended up on the penny stock list, where I love to hang out.

So anyway, back to buying penny stocks. Since you really can’t trust the fundamentals (and I’ll explain why in even more detail in a future post), what can you trust? The one thing that doesn’t lie is the stock’s price chart. If you decide to hang around for any length of time on this blog, you’ll always hear me preaching the gospel of chart reading. Analyzing a stock’s price chart will tell you everything you need to know about that stock. A lot of people, when they find out what I do, they ask me about the different companies I have bought into, to check out my “portfolio”, so to speak. They ask me what this company does or that company does, and I tell them honestly, most of the time I don’t even know. There are stocks that I have traded and made profits from that to this day I have no idea what the company even did, I just liked what I saw on their chart. I don’t care about the company news releases. I don’t care who the CEO or COO is. I don’t care about whether or not they pay dividends. All I care about is what the chart looks like. In a weird way, the chart tells me everything else I would ever need to know about that company, the way it’s run, the public (and private) interest in the stock, and primarily, whether or not the stock is poised for a takeoff. Believe me when I say, there are unseen forces driving the markets that almost ensure the public never wins in the stock market casino. All the public is there for is to have someone to sell to once the insiders have gathered enough shares to make a decent run for the stock. It goes back to that old Wall Street adage, “The public is always wrong.”

This behind-the-scene market manipulation is even more pronounced in the arena of the OTCBB penny stocks. There have been actual cases where even the Mob has been responsible for the quick rise and sudden fall of a few of the OTCBB stocks. But if you understand chart reading, you can see these kinds of radical market moves coming a mile away. So while there are definitely market manipulators at work (something else I must explain in a future post), you don’t have to be left holding the bag; learn how to read the different stock chart patterns and gain a considerable edge over the guy who just buys into a stock because he just got a fax from a “Hot Stock” newsletter touting the next big oil stock or security stock, etc. Trust me when I say, by the time the public hears about a “hot stock”, the insiders have already sold out. And guess who they sold their shares to? Yep…the public.

I had NO idea how long this post had become, but looking back on it, it’s borderline novel material, so I’m going to sign off and save some of this energy for later. Maybe on the next post we’ll get more into the actual details of how to buy penny stocks; I ain’t making no more promises (LOL). So long until next time…