Researching Penny Shares
When deciding which penny shares to invest in there are a wealth of newsletters and websites which you can subscribe to which offer insight and tips and these will often provide a good starting point. However, it is important that you research each company yourself to make sure you pick the ones that are right for you. Personal research will also help you to understand why the share price is rising or falling which in turn will help you to know the right time to sell the shares, or to even buy more.
Ideally a penny share that's worth investing in will have a net asset value per share that is higher than the share price itself. This means that the company is valued more highly than its various liabilities, namely its debts. This will help the company survive through leaner times and will give it more chance of raising more funds to push forward where necessary.
However, you will not always buy penny shares on value grounds. Some shares may be worth nipping in and out of, providing you keep a sharp eye on the share price and are prepared to jump ship when the time is right whether the price has risen or fallen. You should always be prepared to take losses. You will also find some shares in which it is worth investing for the longer term and where you should be prepared to ride the storm through rocky periods to reap the rewards.
For the greater returns you should always try to predict growth in stocks rather than reflect trends. For instance if you discover that a pharmaceutical company is about to publish good results for tests on a new drug, or that a resources company is soon to report good news on an investigation for potential new mining sites, you should invest early. If the share price graphs do not currently reflect this information you could be onto a winner.
To find the right penny share to invest in you need to look into as many aspects of the company as you can. Learn how the company makes its money and look into the management who run the company. You should assess the companies' management for both leadership and technical ability - a good combination of the two should predict a bright future. If a company has been floundering then a positive change of management may be imminent and this would be a great time for you to reassess its potential.
Some of the things you should look for are:
- Strong business plan and results - if they are making more money than they are spending and if their operational plan makes sense.
- Trading volume - a high trading volume will make it easier to buy and sell shares, and will also magnify any price rises.
- A trend of improvement - if the company seems to be making more money year on year this will give the company momentum and will eventually be reflected in the share price.
- High visibility - the company publishes regular financial reports.