WELCOME ALL PENNY STOCKS BEGINNERS
In The Beginning…
For some odd reason most folks, when considering plunging into investing, are drawn toward Penny Stocks. I speculate that the word “penny” sounds affordable, the losses, should there be any, sound like they would be small and the level of complexity would be minor. Penny stocks beginners are wide-eyed and eager to get wet. Although most of that preconception would be correct the warning to proceed cautiously is still out.
Love Those Acronyms
As the name implies penny stocks are shares valued at pennies to a dollar or two. The companies selling the shares are usually just transitioning to public corporations meaning they have applied to the Stock Exchange for a license to sell shares in their company and be listed on the stock exchange boards. The first time they begin selling shares is called “an initial public offering” or IPO.
Why Go Public
The reason a company decides to go public is they need to raise capital. Selling shares in their company is a great way to achieve this. It is expected that the reason they want the money is to fund growth. We all know that a company that is growing is likely to increase in value. If we buy shares in this company at the low end of the growth curve we stand a very good chance of enjoying a healthy “return on our investments” (ROI) when we sell our shares.
Time and again, the initial public offering share price, and I mean the first day out, is a low figure. The idea is to provide a lot of fanfare and hoopla around the IPO by the company principals and investment advisors so that the first day plays like a “black Friday” of stock sales. As sales increase the price is driven higher and this is the jumping off point for those who were first in so they can scoop their early earnings. Remember, buy low and sell high. There are some wonderful newsletters available by penny stocks experts to guide you through the mine field of IPOs and to alert you to the most promising ones.
I analysed a case study for this post. I found an IPO of a gold mining company in Vancouver who is re-opening an old mine in Colorado. The website is slick, the pictures of the operations at the mine site are exciting and the editorial telling of the assays of mineral are hopeful. Then I began looking at financial statements. They went all the way back to 2002. Back then the company had a different name. Although that fact caught my notice I know that it’s not unusual for a mining corporation to hold the original seed money under the name of a holding company until a property is identified for acquisition. At that time it becomes a real mining company and establishes a new name to reflect that fact.
The most recent financial statement had declared a deficit at the year end. Hmmm. Looking further back I see that they had incurred a deficit every year since the beginning. This year’s deficit added to last year’s deficit equals debt. Lots and lots of debt. Eleven millions dollars of debt and growing. I think I know where the IPO money is going to go and it’s not into the growth of the company. Numbers don’t lie. I think we’ll pass this one up.
There are new IPO’s everyday. They are considered “over the counter” trade or OTC. They are tradeable online. Check out all the action at the Over The Counter Bulletin Board http://www.otcbb.com/
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Fingers Holding a Penny, Image courtesy of Gualberto107 at http://www.freedigitalphotos.net
Special Price, Image courtesy of Salvatore Vuono at http://www.freedigitalphotos.net
Dollar Sign Sinking into the Sea, Image courtesy of Stuart Miles at http://www.freedigitalphotos.net