Friday, April 10, 2009

10 Things to Know About Penny Stock Newsletters

Before getting involved with newsletters that pick penny stocks, be sure to give them a review just as you would before investing in a company's shares. Consider these ten points as you make your decision, and you will come a long way to protecting yourself and avoiding the scams.

1. Free Penny Stock Picks

Never under any circumstances should you follow a penny stock pick which you learned about for free. If you heard about it for free, it's almost certainly a bad investment idea.

The source of the information may be pumping and dumping, or be getting paid by the company they are touting. There are a lot of hidden motivations, and you can bet that someone is profiting be encouraging you to buy.

If it's a free tip, assume that it is a junk company being touted by a junk promoter. Great companies don't need to play these promotional games, so it's only the worst companies, or the worst promoters, who are giving you free penny stock picks.

2. Best Markets for Penny Stocks

Stick to the top markets for penny stocks, so you can be sure the companies' shares are in compliance with the regulatory framework.

Some of these better markets for penny stocks include NYSE, AMEX, and NASDAQ, as well as the OTC-BB.

Some penny stocks (sub $5) trade on NYSE, AMEX, and NASDAQ. Most of them can be found on the OTC-BB (the Over the Counter Bulletin Board, which is a subsidiary of the NASDAQ).

At Leeds Penny Stock we avoid, and you should also avoid, shares that trade on the pink sheet market.

3. No Free Trial? No Purchase!

There's usually only one reason why a penny stock website won't give you a free trial. If a penny stock site won't provide a free trial, it's because they don't want you to see that their service isn't worth buying.

Only get involved with penny stock websites that provide free trials, because their business plan is all about giving you enough to keep you as a subscriber. Don't get involved any penny stock service that won't give you a free trial.

4. The Best Newsletters Get Media Coverage

The media focuses on the best services and ignores all the bad or unprofessional ones. Think of the media as a 'screening' service, separating the good from the bad.

If they think you're good enough for an interview, then you'll get the coverage. Penny stock websites that get coverage from the media are enjoying the 'seal of approval' of their fact checkers.

5. Market versus Limit Orders

When trading penny stocks, you should always use limit orders (you pick the price of the trade). You can learn more about limit orders at the free online book,Understanding Penny Stocks.

Never use market orders, because then you are exposed to price volatility, and paying more per share than you expected.

If you choose to use market orders, you may end up paying more (or getting less) for your trades. Learn more about the differences between market and limit orders from your broker. Talk to your broker to learn more about the different order types.

6. Hot Industries will be the Next to Go Cold

Traders enjoy better returns when they steer clear of the latest in-the-news companies, and just stick to fundamentals.

By the time the news of a 'hot' sector reaches our ears, it's already too late.

So many penny stock investors end up losing a lot of money by chasing the latest darling industry. In fact, many traders get wiped out chasing the latest industry that is making news, because they are buying at the peak. A better strategy is to go after the 'cold' or out of favor sectors, because you'll be paying less for them, and enjoy a lot of upside.

7. Respectable Newsletters Usually Have Blogs

The better services produce a lot of content, whether for education or marketing. You should expect to see a Blog on any legitimate web site, even if it's just used as a promotional tool.

A Blog is just a part of an overall presence, and you need to wonder about sites that don't have one. In fact, by following along with their Blog, you'll get a feel for their professionalism and style.

The penny stock website's Blog is a great way to learn about the service, as well as to improve your own investing. It's actually rare that a great penny stock service, or any popular web site for the matter, would not have a Blog.

8. Are There People Behind the Website Address?

Too many people hide behind generic names. HotStock, FalconStockers, EagleStock, GlobePennies... it's all generic, and you have no idea who you're paying.

Avoid these generic, low caliber penny stock services, and look for real people, who care about their reputation and results.

When you deal with a person or people, they will naturally be more accountable to you, and have to consider their reputation.

9. Presence in Social Media

The only reasons that a website won't use social media are that the people behind the site don't understand the internet, are too busy with their real job, or can't be bothered to put in the effort.

You'd expect that most well known penny stock services will have a presence in social media. Well known and successful investors will have a social media presence.

If they are on LinkedIn or Twitter or Facebook, they are more likely serious and well known. On the other hand, websites devoid of any social media presence are also likely devoid of a lot of things that require effort.

10. Look for Teamwork

If you find a penny stock newsletter with a full team working on it, you can rest assured that you're not falling into the 1-man show trap.

Many penny stock websites were probably put together by someone who knows about programming, but may or may not know anything about investing. Most newsletters are a single guy with a computer, possibly working part time from his mom's basement!

When it's just a single individual, how can you trust that they know what they are doing?

In fact, anyone can put up a website, and it's pretty obvious that this is the case for most of the penny stock services out there.

Protect yourself by looking for a full team of people, working in a legitimate, professional company.