5 Ways to Lose Your Money with Penny Stocks

Throughout the day I venture from site to site, article to article, blog to blog and so on. The amount of nonsensical “noise” out there is amazing. Just today I read several articles and blog posts that were highly inaccurate and potentially very damaging to the reader is he or she acted on it.

So, it gave me the idea to write down some things that will cause you to lose money with penny stocks. Today, I’ll briefly go over 5 dangerous actions.

1. Spending too much time in chat rooms or on message boards. This one is a killer. I make money trading penny stocks and I don’t sit around in chat rooms. Does this mean you should do the same? That’s up to you. I think it’s a good way to find out what people are thinking, but I don’t use it as an “advice source.”
2. Reading too much into press releases. I have a degree in Journalism & Public Relations, so I’ve written my share of PR pieces. You can’t take them as factual news. The best pieces always have spin in there. Thing of them as mini ads for the company. They are great for getting ideas and putting pieces of a puzzle together, but they aren’t scrubbed against any fact checking.
3. Not doing any research. So many penny stocks “sites” out there offer stock picks. Most of them just regurgitate stuff from press releases or make picks randomly. They usually cite nothing substantial as a reason and many focus on the same tired sub-penny stocks. Either way, when you get a stock pick or idea, do your own research.
4. Getting caught up in macroeconomics. Yes, there’s financial focus on the “Greece situation” right now, the EU printing money like it’s the US and possibly headed down the same path and chatter of gold going to $10,000 per ounce. But what does that and the price of tea in China have to do with some company selling printer ink in 14 stores? Very little. Many penny stocks go up and done on chart patterns, hype and news. The bigger macro picture, in my opinion, has very little to do with them. It’s good to know these things—especially if you trade other securities—but not required.
5. Not being educated. I don’t mean going to college for 4 years. I’m talking about know how penny stocks work, what affects them, what doesn’t and so on. This really should have been first, because it’s that important. The better educated you are, the easier it is to tell the bull from the real goods. For example, today I found a website telling me that penny stocks were stocks selling under $1 and that this is what everyone thinks. Really? Ok. This is what I mean about junk. If you read more on that site, you’ll see the owner doesn’t really know anything and didn’t even give us the courtesy of reading a book about Wall Street at all.

I’d love to hear from you. What are some other dangerous moves? What do you think about these? And I’m always interested in what else you’d like me to write about.