Buying Penny Stocks

Ever since I was a kid, I wanted to learn how to become a millionaire. Actually, I wanted Howard Hughes to adopt me - but that didn't pan out.

Then, as the years rolled along and I became an investor, I stumbled across the concept of buying 'Penny Stocks'.

Today, in my opinion, other than the lottery -- there is no other investment that provides the potential to become a millionaire faster or for as little money as buying penny stocks.

A lot has been written on this, but I wanted to see if I couldn't explain the opportunity and how to do it from a total beginner's perspective.

NOTE: The information below is intended to be a companion for my webpage titled: "Penny Stock Landmines". Please be sure to review that page for additional learning.

What Is A Penny Stock?

In layman's terms, a "penny stock" is a common stock that trades for less that $5 per share and typically is traded on the 'over the counter' (OTC) or outside of the major stock exchanges such as the NYSE or NASDAQ. A great number of penny stocks trade for well under $1 and quite a few actually trade for fractions of one cent!

* According to the U.S. Securities and Exchange Commission, a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange (like the New York Stock Exchange or NASDAQ) or an "over the counter" listing service, such as the OTCBB or Pink Sheets. The terms penny stock, microcap stock, small caps, and nano caps are sometimes all used interchangeably, however per the SEC definition, penny stock status is determined by share price, not market capitalization or listing service.

Penny Stock Companies

Many new businesses get their start: as 'penny stock companies'.

Here's how it works: to raise capital to get their business off the ground, a new company will offer common shares of stock in their business. Because they are unknown and unproven, they are usually viewed by investors as being very risky. So, their initial offering can literally be valued at well under one penny per share. Hence the moniker: 'penny stock companies'.

In fact, I have owned stock in several companies for which I paid just $0.0001 per share.

That amounts to ONE MILLION SHARES FOR $100! (1,000,000 shares X $0.0001 = $100).

HOW TO BECOME A MILLIONAIRE
BUYING PENNY STOCKS
ON A $100 INVESTMENT:

1. Buy one million shares of penny stocks at $0.0001 per share. ($100)

2. The company really takes off and their stock price increases to $1 per share.

3. Your one million shares is now worth ONE MILLION DOLLARS!

Getting Started

OK, let's say I have you hooked. So let's get started buying penny stocks!

STEP ONE: Besides some money to invest, you're going to need either a stock broker or an online trading account. I use Scottrade.com, but there are many others to choose from like E*Trade, Charles Schwab, etc.

These online traders will require a minimum deposit to get started and will charge you a small commission when you trade stocks (either buying or selling).

STEP TWO: Once your account is set up and you've deposited some money, you next need to decide what stocks you want to buy.

All you need to do to find ideas on stocks to buy is to Google the terms "penny stocks" or "hot penny stocks" and you'll find dozens of sites providing penny stock tips. Here's a link that I use frequently: http://www.thehotpennystocks.com/

Once you've picked a penny stock or two to buy, you're all set.

The online trading system will ask you for the company name or its stock symbol. Then, you need to decide how many shares you wish to buy, etc. Basically, they lead you right through it.

Those are the basics!

Personally, I didn't read any books beforehand -- I just waded in and learned as I went. I didn't even have the weak advice that I'm providing you with!

If you would like to learn more, here's a link to a FREE online book by penny stocks guru Peter Leeds titled "Understanding Penny Stocks".

Buying Penny Stocks = Gambling

Why would you gamble at buying penny stocks?? (and that's exactly what you're doing)

Well, first of all, it's fun to buy penny stocks and follow what they do. Second, there's always the chance that you'll pick one that could turn into the next Microsoft!

But, I have to caution you on a couple of things:

1. This is like Vegas or Atlantic City -- unless you can afford to lose the money, don't play the game.

2. This can be addicting! Like I said, it's basically gambling.

On the other hand, it's kind of fun to say: "Yeah, I own a million shares of Acme, Inc.!"

Good luck!

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Buying Penny Stocks