Beginner Investing: Researching Stocks

When I first started as a beginner investing in the stock market, I was looking to hit it big and make a big score. Everything that I read pointed me toward trading penny stocks and how they can go up in value by 25%-50% in just one day.

I worked with someone that had the trade of a lifetime. He was telling me that there was this company that was in the commodity sector (which in regards to penny stocks, means nothing) and that they were about to hit pay-dirt with a new ore vein discovery. I really wasn’t too sure about commodities and knew even less about how the engineers calculated the potential find of an area.

He talked to another co-worker and myself about getting in on the deal. I was hesitant but this co- worker said that he would research it and get back to us with his findings. I had known this person for about four years and knew that he’d made some decent money in the stock market. About a week later he came back and said that he couldn’t believe what he was finding out. The company was actually going well and was on the verge of the “mother load” of discoveries.

I went ahead and took a chance with the only money that I was able to put together in a short period of time. I invested $200 into the company, but the other co-worker decided to liquidate some of his holdings to get in on the deal in a big way. He invested $50,000 in to this company.

I’m sure by now you know where I’m going with this story. Yes, the company was a scam. They were based in Africa and weren’t subject to the same laws as others that traded on the big boards.

What I mean by the big boards is NYSE (New York Stock Exchange), NASDAQ, CME (Chicago Mercantile Exchange) and the NYMEX (New York Mercantile Exchange). This stock was trading on what is referred to as the OTC pink sheets, which means it’s an over the counter type stock.

I share this story not because I enjoy talking about my failures, but I will discuss the mistakes I’ve made here for two reasons.

1. You can learn from my mistakes.
2. I learned from my mistakes.

My point of this story is that when you trade stocks, you need to do your research and due diligence in finding out everything about a company that trades on these smaller boards. If they trade in a different country they may not be held to the same standards as the ones traded in the United States.

Penny stocks can make you a lot of money, but you can also lose it just as quickly. Be careful in how much you invest in what is referred to as penny stocks.

A penny stock is a stock that has a share value of less then $5. That doesn’t mean that some of the financial stocks that have been beaten up lately are considered a penny stock. I refer to stock of companies that are relatively new and are trying to raise capital to increase their company. Many of them are legit and will become a major player in years to come, but you need to do your homework to help steer clear of the ones that won’t make it out of the gate.

This post is part of the Carnival Of Money Stories

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Tagged With Beginner Investing, chicago mercantile exchange, commodity sector, investing in the stock market, nasdaq, new york mercantile exchange, new york stock exchange, nymex, nyse, penny stocks, pink sheets, stock exchange nasdaq, stock market

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4 Responses to “Beginner Investing: Researching Stocks”

financial wellness project » 87th edition of the carnival of money stories! on December 3rd, 2008 1:53 am

[...] presents Researching Stocks posted at Beginner [...]
Carnival of Money Stories Edition No. 88 - The Dough Roller on December 9th, 2008 6:45 am

[...] presents Researching Stocks posted at Beginner [...]
boozwatt.com on January 13th, 2009 5:06 pm

The Carnival of Smarter Investing # 21…

Welcome to the Twenty First Edition of The Carnival of Smarter Investing! We’re back with our November edition of CoSI, so sit back, relax, and enjoy this supersized gathering of featured articles by investors and writers in the areas of business and …
Market Timing on June 1st, 2009 4:24 pm

haha, thanks now we can learn from your mistakes!