Guidelines for Successful Penny Stock Investing
Penny stocks, despite their more speculative nature, offer incredible opportunity with minimal capital. However, success is not just about finding the right stocks (which The Bowser Report and The Bowser Database help to do). We previously covered how to get started investing generally, but this article will walk you through the steps to start your penny stock portfolio, including where to invest, how much capital you'll need and when to make your moves to maximize growth.
Where to Invest?
In order to buy and sell stocks, you'll need a brokerage account. Selecting the right brokerage account is essential for your success as an investor. Most major brokerages now offer $0 trade commissions for major exchange-listed securities, which benefits small investors tremendously. To make the best decision, consider our blog post on picking a brokerage.
How Much Capital Do You Need?
Once you've selected a brokerage, you'll need to fund your account. Funding your account can happen with money you have today (upfront capital) and money you intend to contribute on an ongoing basis in the future (ongoing capital).
To kickstart your penny stock portfolio, you'll need a certain level of upfront capital. Carefully evaluate your financial situation and decide on the amount of capital you are comfortable dedicating to this portfolio. Your upfront capital will determine the number of stocks you can initially purchase.
Ongoing capital is the money you are comfortable contributing to your portfolio on a regular basis. This is especially important if your upfront capital isn't sufficient to create a well-diversified portfolio comprising 12 to 18 stocks. Over time, as your portfolio grows and becomes self-financing, the need for ongoing capital may decrease.
Determining Position Sizes
Finally, based on the amount of capital available, you can decide how much of each penny stock to buy. The goal is to build a portfolio of 12 to 18 stocks with equal share or dollar amounts in each. Diversifying in this way will minimize risk by spreading it across a number of investments.
When to Buy Penny Stocks?
Once you've opened a brokerage account and allocated capital, you're ready to start buying penny stocks.
Identifying Profitable Stocks
The simplest way to start is to look for stocks in Category 1 and Category 2 of The Bowser Report (on page 4). These stocks are considered "Buys" and have an increased probability of future appreciation. Depending on your upfront capital, invest in as many of these stocks as possible.
Expanding Your Penny Stock Portfolio
Once you've purchased all of the penny stocks you can/want in Categories 1 and 2 on page 4 of the monthly newsletter, consider buying each new Company of the Month as a new issue publishes. Ideally, you'll do this until you are holding 12 to 18 penny stocks.
A new investor opens a brokerage account with Charles Schwab. This investor is willing to contribute $1,000 upfront and then $200 per month on an ongoing basis. Based on that amount of capital, the investor decides to evenly distribute available capital among five penny stocks and then buy each new Company of the Month until he or she holds 12 to 18 securities. This means, the investor will take $200 positions in each penny stock.
The investor looks over page 4 of the October 2023 newsletter and finds the following companies to invest in:
- Assertio Holdings (ASRT): 93 shares @ $2.13 = $198.09
- Dynagas LNG (DLNG): 77 shares @ $2.58 = $198.66
- Superior Drilling (SDPI): 253 shares $0.79 = $199.87
- Zedge, Inc. (ZDGE): 104 shares @ $1.92 = $199.68
- Good Times Restaurants (GTIM): 73 shares @ $2.71 = $197.83
The total cost basis for these five stocks is $994.13. That leaves about $5.87 plus $200 per month to round out the additional seven companies in the portfolio.
Starting a penny stock portfolio can be intimidating, but it is a rewarding endeavor when approached with a well-thought-out plan. By carefully considering your capital, selecting the right stocks and managing your portfolio with a growth-oriented strategy, you can work toward building a profitable and diversified penny stock portfolio over time. Keep in mind that penny stocks can be volatile, so thorough research and disciplined management are essential for long-term success.