The upside of investing in small stocks
When I first sat down to write this post, I thought about discussing the investment public's overwhelmingly negative view on penny stocks. However, rather than ranting about why the investment community is missing the point, I have decided to share the positive aspects of investing in penny stocks, without bashing the public's perception.
Here at The Bowser Report, we recommend publicly-trading, profitable companies below $3 per share. Investors are quick to shun this area of the market for one major reason: everyone, including those claiming to be financial experts, told them that this section of the market is filled with non-performing, risky, volatile stocks that are all but guaranteed to lose their money. But, there is another side to this story--a side that doesn't get told too often, but is perhaps more accurate.
When I first started at The Bowser Report, I will admit I was skeptical. Here was a man, Max Bowser, who I thought was claiming he had cracked the code to investing in small stocks. The more I immersed myself in the material, the more I began to discover that he wasn't claiming to have cracked a code, but rather preaching a proven investment method that generated profits in, you guessed it, penny stocks. His method consisted of just a simple formula, lots of research and even more discipline.
Prior to starting The Bowser Report, Max discovered that there are a number of companies trading under $3 per share that are tremendously undervalued by the market because of their share price. The big firms can't justify purchasing 1,000,000 shares of a $3 company with a $30 million market cap when such a move would alter the share price drastically. And, without institutional ownership, few analysts are going to cover these companies. This trickle down effect continues to the point where no one wants to touch these companies merely because their price is so low.
With the companies that Max was talking about, and that we now follow in the newsletter, the issues often brought up are not major concerns:
- Lack of information? They are fully-reporting with the SEC, and company websites as well as sites like Yahoo! Finance have made it easy to track down these filings.
- No minimum standards? Over half of the companies that we recommend trade on a major exchange, and those that don't are sorted into the OTC Market Group's various marketplaces based on a variety of standards. We recommend only from the OTC Market's top two tiers.
- Lack of history? Most of the companies we select have been around for a while. They aren't start-ups, nor are the R&D phase companies. They are real companies with real products and real businesses that have been around for some time.
- Liquidity? While a few companies that we recommend do have minor liquidity issues, most do not. In fact, most trade tens of thousands of shares a day-- nothing compared to the blue chips that trade tens of millions, but plenty for the average investor who wants to purchase a few hundred to a couple thousand shares.
These companies are growing their fundamentals, but receive little market attention. As a result, they might increase revenues and earnings drastically without a considerable increase in share price. And, we find them while they are still relatively under the radar. But, our strategy is not a short term deal, and our subscribers know that they need to be patient. After all, we recommend companies to invest in, not to trade.
As these companies continue to make progress fundamentally, they may make small moves forward in share price. Eventually, in a matter of a few months or a couple of years, the market will take notice and the price will skyrocket. This leaves you, the small investor who got in under $3 per share, to benefit.
Now, this doesn't happen to every company that we recommend. Anyone claiming to pick all winners is pulling your leg. That's why we have our Game Plan in place. By diversifying and following a disciplined investment strategy, you will be more patient, allowing winners to grow, and better protected, having your losses offset and more by gains.
Investing in small stocks is not for everyone, nor is our Game Plan or our newsletter. But, the bottom line is, there is money to be made in penny stocks as long as you are smart about what you are investing in.
- Is the company current in its reporting?
- Is the company listed on a major exchange, or in an upper tier of the OTC Market Group's marketplaces?
- Is the company in a solid, growing financial state? Is it generating revenues? Is it profitable? Does it have a real business?
- Is the company trading relatively actively? At least a few thousand shares a day.
Those four points are a good place to start. However, the best way to ensure success is thorough research and a hard-nosed investment strategy. If you can do all of that, you will be successful. If not, find a resource (like The Bowser Report) to help you with some of the leg work. If that is too much, small stocks are not for you. However, speaking from my own experience, as an investor and the editor of this newsletter, succeeding in small stocks is both fun and rewarding.
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