Be penny wise, and not penny foolish

Although there are many good penny stock investments available, which could turn a small amount of capital into a small fortune very quickly, the average investor should be very careful in making his choices  You need to know what to look for and what to avoid. When searching for that one big windfall, make sure you avoid the following situations.

Avoid entertaining anyone who tries to sell you investments over the phone, such people are trained in effective marketing, and resort to all kinds of high-pressure sales tactics, and effective, credible arguments. However, they are not doing you any good turn, no matter how good they make a venture sound.

Often promoters and brokerage firms will dump their own OTC stock on you, and the money you pay in will go into their own pockets, or the pockets of their company.

Good companies operate with more ethics and never need to resort to desperate measures and cunning tricks like these, but there are several shady companies that do this all the time. So one can never be too careful. What generally follows is that there is no buyer for your shares when you wish to sell them.

Since these are low volume stocks, there is low trading activity and you will never be able to capture the best buying and selling prices. It will also become more and more difficult to understand where the stock price is heading, or to calculate fair estimation for the company’s stock price.

Always ignore hot tips for small companies. This is manipulation in its undisguised glory. Professional promoters make a very good living spawning rumors about some penny stock that’s sure to go through the roof. The whole notion hinges on the rumor being spread from person to person.

Investors get involved without special information about the company or the actions of the promoter. In most cases if a stock really is going through the roof you won’t hear a word about it, because a select group of individuals will be very keen on keeping the information secret

Never believe the words ‘guaranteed performance’. Nothing is guaranteed, remember Newton’s law, what goes up must come down, this is true of penny stocks. The only people who issue such guarantees are the promoters, ignorant investors, or self-serving brokers. Don’t believe them. Instead check into the company yourself and if you feel it is a good investment, you may proceed.

Avoid sinking ships, those stocks that are priced so low, you feel that the prices can’t get any lower than this. Avoid them like the plague. Most sinking ships actually sink, rarely do they stay afloat. With penny stocks, you need to avoid this type of thinking. 

Never Buy Penny Stocks Again! Go for Big Growth!

If you are a novice, you might be led to believe that penny stocks are an easy get-rich strategy for the newcomer as well as for some of the experienced investors. The choice an investor has is between the blue chip companies and the small ones.

The blue chip companies run established, successful and steady businesses. But the smaller companies are found to appeal more to the investors due to their probability of striking a massive, incredible fortune. There are negative reasons that influence the investors to purchase penny stocks.

People usually fall prey to the belief that if the stock is cheap it will give quicker returns. This is simply not true. In fact the smart investor should not think twice, he should just go ahead and invest in the ‘high priced’ growth stocks of the larger or the blue chip companies. They possess scope for appreciation, though the returns are slow and steady, your capital will not get wiped off.

Another reason for investing in growth stocks is that should something go really wrong, the government steps in to bail out these companies, whereas if penny stocks sink, who will help?

The absolute value of the share price does not have any impact on the investors’ returns in the ultimate count. Earlier, when the stocks were in physical form and not dematerialized, there existed minimum lot sizes for the buying of stocks and this held them outside the reach of the small investors. So, a good understanding of the financial market is essential prior to making an investment decision. An investor can buy a very small quantity of a growth stock and add to it on every decline. This is smart thinking to bring down average cost.

In penny stocks, there is manipulation, and pumping and the dumping policies are rampant. The promoters of these small cap companies usually patch up with the brokers and pump up the stock prices by indulging in massive publicity stunts and issuing announcements. This attracts the attention of the investors. As a result of the hype when the desired number of the penny stocks is sold, they finally dump it on the retail investors. Therefore, it is not wise to simply rely on the broker’s advice. 

The attractive brochures of penny stocks show huge profits but in reality these small companies have registered years of losses. These are often cooked up details to lure the investors, who must learn to differentiate between the genuine and the fake. But the investor does not stand the option to validate any of this information since they seldom have the resources to do it. They again rely on them and the brokerage firms.

And most important, when penny stocks get stuck in the lower ring of the stock market circuit, it is difficult to liquidate them, for the exit door is tightly shut before the small investor realizes it. 

“Wrong Numbers” and Stock Tips on Your Telephone

You come home after a long, honest day’s work, stroll by your message machine, and see the light blinking. Did a loved one call with good news? Is there a friend calling to find out what you’re doing tomorrow? Some people are finding that they have instead received a “misdialed” call from a stranger, leaving a “hot” investment tip for a friend. The message is designed to sound as if the speaker didn’t realize that he or she was leaving the hot tip on the wrong machine. Maybe the message sounds like this:

“Hey Tracy, it’s Debbie.  I couldn’t find your old number and Tammy says this is the new one.  I hope it’s the right one.  Anyway, remember that hot stock exchange guy that I’m dating?  He gave my father that stock tip on the company that went from under a buck to like three bucks in two weeks and you were mad I didn’t call you?  Well I’m calling you now!  This new company is supposed to be like the next really hot clothing thing.  And they’re making some big news announcement this week.  The stock symbol is … He says buy now.  It’s at like 50 cents and it’s going up to like 5 or 6 bucks this week so get as much as you can.  Call me on my cell, I’m still in Orlando.  My Dad and I are buying a bunch tomorrow and I already called Kelly and Ron too.  Anyway I miss you, give me a call.  Bye.” 

If you get a message like this, it’s not a wrong number at all. Instead, it is from someone who is being paid to leave these messages on a whole lot of answering machines. The people paying for this message to go out on hundreds or thousands of answering machines own some of this stock. They are hoping you can be tricked into buying some too, as they stand to gain by selling their shares if the stock price rises because gullible investors buy.  Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose their money.  Fraudsters frequently use this ploy with small, thinly-traded companies because it’s easier to manipulate a stock when there’s little or no information available about the company.

These scams have also migrated to email and faxes. Be extremely wary of an email message that starts out like this:

Hey you! PLEASE don’t tell anyone about this email, because if the SEC finds out, I could get in big trouble for passing on this information, maybe even go to jail. This is super important! I hope I have the right email for you. Your messages keep bouncing back because your mailbox is full, and I seem to remember this is your other account. I tried calling but you’re not home .. arghh! OK here’s the news ..

And look out for a fax transmission that says, “Will you please put your cell phone on.  I have been trying to get you for 2 hours.  I have a stock for you that will triple in price just like the last stock I gave you did.  I can’t get you on either phone.  Either call me, or call Linda to place the new trade.  We need to buy now.  P.S. You better be good to me this Christmas.  No other Stock Broker has given you back to back wins.  Thanks, your shining star Financial Planner.”

It is never a good idea to put your hard-earned money into a stock on the basis of a hot tip from somebody you don’t know. There are unscrupulous individuals out there who have a financial stake in trying to drive up the price of companies that you’ve likely never heard of. Many fraudsters rely on Internet chat room sites or spammed investment newsletters to promote companies, but at the SEC we’re beginning to hear more and more reports of the phony misdialed number and misdirected email scams.

Here’s a list of red flags that we often find in many of the frauds that we see:

• If it sounds too good to be true, it is. Any investment opportunity that claims that there are huge guaranteed rewards, especially for acting quickly, are incredibly risky, and more likely to lead to losing some, most, or all of your money.

 

• “Guaranteed returns” aren’t. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, and high yields typically involve high risk. If your money is perfectly safe, you’ll most likely get a low return. High returns represent potential rewards for folks who are willing to take big risks. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” Don’t believe it.

 

• Check out the company before you invest. If you’ve never heard of a company, broker, or adviser, spend some time checking them out before you invest. Most public companies make electronic filings with the SEC. There are computerized databases to check out brokers andadvisers. Your state securities regulator may have additional information. And by the way – if a supposedly upright firm only lists a P.O. box, you’ll want to do a lot of work before sending your money!

 

• If it is that good, it will wait. Scam artists usually try to create a sense of urgency – implying that if you don’t act now, you’ll miss out on a fabulous opportunity. But savvy investors take time to do their homework before investing. If you’re told something is a once-in-a-lifetime, too-good-to-be-true opportunity that “just can’t miss,” just say “no.” Your wallet will thank you.

Make A Financial Plan

Figuring Out Your Finances

Sit down and take an honest look at your entire financial situation. You can never take a journey without knowing where you’re starting from, and a journey to financial security is no different.

You’ll need to figure out on paper your current situation— what you own and what you owe. You’ll be creating a “net worth statement.” On one side of the page, list what you own. These are your “assets.” And on the other side list what you owe other people, your “liabilities” or debts.

Your Net Worth Statement

 

 

Assets	Current Value	Liabilities	Amount
cash	_______	mortgage balance	_______
checking account	_______	credit cards	_______
savings	_______	bank loans	_______
cash value of life		car loans	_______
insurance	_______	personal loans	_______
retirement accounts	_______	real estate	_______
real estate	_______		_______
home	_______		_______
other	_______		_______
investments	_______		_______
personal property	_______		_______
total	_______	total	_______

Subtract your liabilities from your assets. If your assets are larger than your liabilities, you have a “positive” net worth. If your liabilities are greater than your assets, you have a “negative” net worth. You’ll want to update your “net worth statement” every year to keep track of how you are doing. Don’t be discouraged if you have a negative net worth. If you follow a plan to get into a positive position, you’re doing the right thing.

 

---

 

KNOW YOUR INCOME AND EXPENSES The next step is to keep track of your income and your expenses for every month. Write down what you and others in your family earn, and then your monthly expenses. Include a category for savings and investing. What are you paying yourself every month? Many people get into the habit of saving and investing by following this advice: always pay yourself or your family first. Many people find it easier to pay themselves first if they allow their bank to automatically remove money from their paycheck and deposit it into a savings or investment account. Likely even better, for tax purposes, is to participate in an employer sponsored retirement plan such as a 401(k), 403(b), or 457(b). These plans will typically not only automatically deduct money from your paycheck, but will immediately reduce the taxes you are paying. Additionally, in many plans the employer matches some or all of your contribution. When your employer does that, it’s offering “free money.” Any time you have automatic deductions made from your paycheck or bank account, you’ll increase the chances of being able to stick to your plan and to realize your goals. “But I Spend Everything I Make.” If you are spending all your income, and never have money to save or invest, you’ll need to look for ways to cut back on your expenses. When you watch where you spend your money, you will be surprised how small everyday expenses that you can do without add up over a year.

Monthly Income and Expenses Income: _____   Expenses:   Savings _____ Investments _____ Housing:      rent or      mortgage _____    electricity _____    gas/oil _____    telephone _____    water/sewer _____    property tax _____    furniture _____ Food _____ Transportation _____ Loans _____ Insurance _____ Education _____ Recreation _____ Health care _____ Gifts _____ Other _____     Total _____

 

Small Savings Add Up to Big Money

How much does a cup of coffee cost you?

Would you believe $465.84?  Or more?

If you buy a cup of coffee every day for $1.00 (an awfully good price for a decent cup of coffee, nowadays), that adds up to $365.00 a year. If you saved that $365.00 for just one year, and put it into a savings account or investment that earns 5% a year, it would grow to $465.84 by the end of 5 years, and by the end of 30 years, to $1,577.50.

That’s the power of “compounding.” With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount saved can add up to big money.

If you are willing to watch what you spend and look for little ways to save on a regular schedule, you can make money grow. You just did it with one cup of coffee.

If a small cup of coffee can make such a huge difference, start looking at how you could make your money grow if you decided to spend less on other things and save those extra dollars.

If you buy on impulse, make a rule that you’ll always wait 24 hours to buy anything. You may lose your desire to buy it after a day. And try emptying your pockets and wallet of spare change at the end of each day. You’ll be surprised how quickly those nickels and dimes add up!

 

Pay Off Credit Card or Other High Interest Debt

Speaking of things adding up, there is no investment strategy anywhere that pays off as well as, or with less risk than, merely paying off all high interest debt you may have. Many people have wallets filled with credit cards, some of which they’ve “maxed out” (meaning they’ve spent up to their credit limit). Credit cards can make it seem easy to buy expensive things when you don’t have the cash in your pocket—or in the bank. But credit cards aren’t free money.

Most credit cards charge high interest rates—as much as 18 percent or more—if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you the high returns you’ll need to keep pace with an 18 percent interest charge. That’s why you’re better off eliminating all credit card debt before investing savings. Once you’ve paid off your credit cards, you can budget your money and begin to save and invest. Here are some tips for avoiding credit card debt:

• Put Away the Plastic

Don’t use a credit card unless your debt is at a manageable level and you know you’ll have the money to pay the bill when it arrives.

• Know What You Owe

It’s easy to forget how much you’ve charged on your credit card. Every time you use a credit card, write down how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full.

• Pay Off the Card with the Highest Rate

If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards.

The same advice goes for any other high interest debt (about 8% or above) which does not offer the tax advantages of, for example, a mortgage.

Once you have paid off those credit cards and begun to set aside some money to save and invest, you’re in the savings habit! Now that you are freeing up some money to save and invest, it’s time to get the latest stock market report an start your journey.

Insider Trading

“Insider trading” is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. 

Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.

Examples of insider trading cases that have been brought by the SEC are cases against:

• Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments;

 

• Friends, business associates, family members, and other “tippees” of such officers, directors, and employees, who traded the securities after receiving such information;

 

• Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;

 

• Government employees who learned of such information because of their employment by the government; and

 

• Other persons who misappropriated, and took advantage of, confidential information from their employers.

Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

The SEC adopted new Rules 10b5-1 and 10b5-2 to resolve two insider trading issues where the courts have disagreed. Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is “aware” of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith.

Rule 10b5-2 clarifies how the misappropriation theory applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory.