People who are smart enough to throw large cap screens out the window when evaluating penny stocks, that’s who.You’re going to need a new set of ground rules. Penny stocks, being a completely different beast from large-cap stocks, need to be viewed through a different lens.
Here’s what you need to remember:
In Monopoly there are a Boardwalk, a Marvin Gardens, Utilities, Railroads, etc. In the stock market you have the same type of properties (stocks), as in the game of Monopoly. For example, a Boardwalk may be a GE; a railroad, a CSX Corp.; Duke Energy, a utility. The rent a player collects in Monopoly could be compared to the dividends collected by a shareholder in the stock market. How much rent collected in Monopoly would depend on the property owned and how many houses are owned on the property. In the stock market game this would translate into which dividend paying company is owned and how many shares are owned of each company.
First, how can I find them? Penny stocks can be sold on any of the exchanges, but they are mostly listed at either the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets. These tow exchanges are specifically designed to handle Penny Stocks List. They can be accessed via the internet (like any other exchange) and are traded in the same way. These two companies do not require the same level of oversight that the NYSE and NASDAQ do, but they still have some good stocks.
Real Estate Investment Trusts are tax advantaged entities that pool the money of individual investors for the purpose of acquiring and managing income producing properties. A close relative is a mortgage real estate investment trust which buys or originates loans that are secured by real estate. In both cases part of the reason for the higher than average payout is that, as long as they pay out 90% of their taxable income in dividends to the shareholders a REIT, or MREIT, pays no corporate income taxes. As the economy picks up, occupancy rates in malls, residential rental properties, and commercial locations will improve, and subsequently returns on REITs should rise. This is currently being anticipated by the market, and share prices for REITs have been rising accordingly despite the fact that unemployment is still at or near 10% and significant improvement in occupancy rates has yet to materialize. When it does become a reality there should be a continued rise in share price in these real estate oriented entities.
Mortgage REITS, on the other hand, make their money by the spread between the cost for them to borrow money, and the rates that they charge their customers. The historically low interest rate environment created by the FED Funds target rate, which has been at 0 to 0.25% since December 16, 2008, has enabled those MREITs, that survived the banking crisis and recession, to prosper in terms of share price. However, now that the economy seems to have turned the corner, and with many economists predicting that rates will be going up by the end of the year, there will be a time relatively soon that market perception, if past history is any judge of future results, will turn against MREITs.
Despite the extraordinary high yields (some as high as 15-20%) share prices will drop as these shares are sold off in anticipation of a more difficult profit environment. In the past, this type of sell off impacts the entire category regardless of the fact that some MREITs are hedged against interest rate increases, some are only invested in government backed mortgages, and some are invested in less risky mortgages than others. Therefore, within the sub-category of REITS, based on current market conditions, it would appear that as the economy improves, and unemployment declines, that the REITs invested in brick and mortar buildings is the place to be versus the MREITs that are invested in interest rate sensitive mortgages.
When you start having a good income from your dividend stocks investments, you might want to start thinking about reinvesting your dividends into something known as a DRIP (dividend reinvestment program), so you can begin to earn compound interest on your investments. While you might be tempted to just save the money, when you adjust for inflation you’ll end up with less money than what you could have had if you had just invested the money in the first place. Dividend stocks reinvestment programs give you a great bang for your buck.
The second reason to sell a stock is if there are major changes in the business you are investing in that cause, or will cause, the value of the stock to drop, with little or no possibility of the value rising again. Ideally, you would sell your stock in this situation before the value starts to drop or as soon as is possible.
These practices may appeal to the intellect, but how they feel is where traders get into trouble. There are several common mistakes repeatedly made by traders that bring large losses, missed profits, and ruin for many. These mistakes run in direct conflict with the known and established good practices for consistent and profitable trading, yet are made over and over again by the same traders. Since they are repeated, it would be reasonable to say that they have become habits. Let’s examine these habits from the perspective of the emotional response for the individual.
After stock picks for 2011 all, your money is at stock picks stake and it really pays to know the ins and outs of the investments you will be putting them in.