What is a Penny Stock?
A Penny Stock is a stock whose shares trade for less than $5. These stocks are a bit risky to invest in, but also have the potential to generate huge gains.

What are some of the Dangers?
One of the greatest dangers of penny stocks is their lack of visibility. Because most of these companies are newly established or small, there is less information about them. This fact requires you to make decisions based on limited information compared to what is available for larger, more established companies in major stock markets. Another great risk is that these stocks can sometimes trade slowly from low liquidity, making it difficult to cash out on your investment.

What are the positives?
By its nature, a penny stock has a lot of potential. That is to say, it has a lot of potential to move either up, down or disappear completely. That being said, there is much more potential for growth than there is for loss. As a result, a good penny stock pick can reap huge returns and give a nice boost to your investment portfolio.

What else should I keep in mind?
Even some of the top penny stocks to buy are not quick, easy money. Despite what anybody tells you, these stocks require great care and educated investment. You should take into account that these shares trade slower than larger shares. Many of the companies selling these penny stocks have high debt loads and are selling stocks to reinvest into the growth of their companies.

Some of this may sound scary. However, with the correct knowledge and prudence, penny stocks can not only be profitable but enjoyable to trade. There is a certain rush that you get from trading in a volatile environment. You also have the opportunity to be part of a someday great company. Many of our largest technology firms were funded in this way. With the correct penny stock guide, you could be well on your way to taking part in the next big venture.

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Toyota

Toyota is a stock to buy now because it is a good car company. Many people are foolish about Toyota stock because they think that the company is doomed due to the major recall issued regarding their cars with runaway acceleration. However, people forget that Toyota has been making cars for more than 50 years and their cars are usually very high in quality. A problem like this happens only once in the history of a car company. While the stock may dip lower due to the fear of pending lawsuits, Toyota will be fine in the long term. It is a very profitable company and has been profitable when other car makers were not. Even though Toyota faces problems in the United States, it actually does very well internationally. That is why you might want to consider Toyota stock.

General Electric (GE)

Ge is another great company worth investing in simply because it makes great products and makes many of them. GE has a real future in commercial aviation and wind turbines. GE is the biggest supplier of wind power machines and thanks to the current administration, investment in this area will continue to rise. Wind power is a mature technology. Windmills have been around for several hundred years and the principals remain the same. The wind power phenomenon benefits GE because people buy from them to create these megawatt wind farms.

GE also have a very successful aviation business where it designs engines. One growing market is the one for private jet engines and regional jet engines. GE has invested a lot of money into these engine designs. People want to fly further and in quieter planes. Airlines want more efficient engines that run with low maintaining costs. GE has invested a lot of money in this area and they have the potential to lead sales when demand grows.

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The Rule Of Thumb:

The rule of thumb is that bonds go in tax-deferred accounts and more tax-efficient equity funds should go in taxable accounts (assuming you don’t have enough room for both in your 401k).  The reason for this is that taxable bonds have much higher yields than even the most generous high yield municipal bonds.  That said, most investors will eventually hit a point where they simply don’t have enough room in their tax-deferred accounts for the quantity of bonds required to fill out their asset allocation.  Part of this is due to the fact that the longer you invest, the larger your portfolio will naturally become.  But most of it is due to the simple fact that as we grow older, we usually become more conservative and wish to allocate a larger percentage of our portfolio to bonds.

The Taxable-Equivalent Yield Formula:

So you have no choice but to own bonds in a taxable account.  How do you decide which is better, tax free municipal bonds or taxable bonds?  The formula is actually pretty simple.  Note: If you buy municipal bonds from the state you live in (for example California if you live in California, etc), the interest earned on them is also exempt from state income tax, which you should factor into the formula below.

Taxable-Equivalent Yield = municipal bond interest rate / 1 – (federal tax rate)

If the taxable-equivalent yield of a particular muni bond fund is greater than the yield on a comparable taxable bond fund, you are better off owning municipal bonds.  If it’s lower, you’re better off owning taxable bonds even after paying tax on the income.

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There is a popular saying among rich people and that it isn’t about the money they make but it’s more about the money they keep. This is actually profound advice if you consider that so many people invest in the stock market hoping for fast money without any savings to their name. Having money in the bank will definitely help in influencing you NOT to sell in rough times.

When people are investing, they should think about investing for the future with long-term stock picks. This is for a few reasons. Hopefully, you’re able to spot some growth stock picks that will be worth more in the future and it takes time for a company to build. Given the time you need to wait, they should be selling at a value price.

Other reasons to invest in the long term include just not triggering so many commission fees with buying and selling transactions like a lot of traders do. This eats away at your initial investment and like stated above, being rich is about the money you get to keep. While day trading might seem glamorous and there’s no doubt that you can make a lot of money fast, you can also lose it as quickly as the money came in.

One of the rules of investing from the famed investor Warren Buffett is to never lose your money. And given his track record of being a billionaire stock picker, who can argue with him? It takes discipline not to invest in losers and that is why Buffett is known to hold billions of dollars in cash. Going in and out of trades and being forced to make decisions when you don’t have money is not a good way to invest. If you want to be rich investing, you need to your money to pounce on opportunities when they do come along.

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What exactly is a cheap stock? Cheap doesn’t just mean that the trading price of the stock is cheap. That is criteria we will look at, but not the only one. Stocks valued at $100 or $200 can be called cheap if they meet certain conditions. You could even call Berkshire Hathaway cheap last year when it fell from a high of $140,000 a share down to about $75,000 a share in 2009. It has since rallied to over $120,000 a share since. Why would have been deemed cheap? The underlying businesses that make up Berkshire Hathaway were still fundamentally sound and throwing off cash. The stock tanked due to investors being afraid of the economic situation last year.

So that is one thing we are looking for. Stocks that are in good shape whose share prices are taken down, but the business is still good and profitable. It’s tough to invest in a scenario like that, buying when everything looks bleak, but if you are able to, you can make a lot of money. Warren Buffett has said he likes to be greedy when others are fearful and fearful when others are greedy.

Let’s use Warren Buffett for another example. Early in his investment career, he found a stock trading for about $45 a share. This was back in the early 1960”s and $45 a share was a lot of money then. Just based on the trading price of the stock, you might have concluded it wasn’t cheap. What Buffett would do is to closely exam the assets of companies. He discovered this $45 stock had over $65 a share in cash and liquid investments! Imagine buying something worth $65 for $45. That would be a classic example of finding a cheap stock.

These are just 2 examples of looking for the best cheap stocks. They are out there, its up to you to research and uncover them.

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1. What is the fund’s goal?
The fund’s goal should match your own. If your goals change over time, you may need to reevaluate your investments. If you invest primarily for growth, your goal is to increase the value of your investment over the long term. If you invest primarily for income, your goal is to receive a regular flow of earnings from your investment. If you invest primarily for stability, your goal is to protect your investment from loss. No investment can maximize all three goals simultaneously. Some funds emphasize one goal; others try to assign priorities among goals; still others try to strike a balance among different goals.

2. What is the fund’s investment strategy?
The prospectus describes the range of securities the fund may purchase, how it selects them, the types of securities it emphasizes, and investment practices the fund may use. The fund’s investment strategy relates to its, and  your goals.

3. What are the fund’s fees and expenses?
All funds must fully disclose their fees and expenses in a table at the front of the prospectus. To make it easy to understand and compare to different funds, all fee tables must follow a standardized format. You must decide if the cost of owning a particular fund is acceptable to you.

4. How are the fund’s distributions made and taxed?
Fund distributions—your earnings—include dividends earned on the investments the fund holds, and any capital gains made when the fund sells investments for more than it paid for them. Funds must make distributions at least once each year. Many shareholders elect to have their distributions reinvested in the purchase of additional shares of the fund, rather than taking them out as cash. It may also be important to you to determine when distributions are made and how they’re taxed. You will be taxed on all taxable distributions, whether you take them as cash or reinvest them in additional shares. Of course, if you sell your fund shares, you may realize a gain or loss which is subject to taxation.

5. How can you buy fund shares?
Some mutual funds offer their shares through investment professionals who provide investment advice, such as brokers, bank representatives, and financial planners. Other funds offer shares directly to investors through the mail, by telephone, over the Internet, or at their own retail offices. Funds may also be offered through employer retirement plans. No matter how or where you invest, mutual funds, unlike bank deposits, are not insured or guaranteed by the federal government.

6. How can you sell fund shares?
By law, the fund must stand ready to buy back your shares on any business day. Depending on their value at the time you redeem, you may receive more or less than you paid for them. Redemptions may be made by contacting the fund company directly or through your investment professional

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If you have Sirius/XM radio, you can listen to the Bloomberg channel and a handful of others for up to date information. As for TV, you can watch CNBC. Their stock market coverage throughout the day is quite informative, but other than these few channels you really don’t have a wide variety of choices.

When it comes to the internet though, there is a ton of resources to get you started and the amount of information is endless. Of course you have a lot of the spammers out there and those who just want you to buy into their program or buy their e-book. Most of these people are not known in the investing community and all they talk about is their own self-proclaimed accomplishments of how they struck it rich.

One person that I would recommend is Jim Cramer, the over-the-top, happily-insane, entertainer and well informed in the investing world, host of Mad Money. He is also the chairman of the stock market website, The Street.com

I have been watching Cramer for as long as he’s been around and I learned a lot of things from him and I personally have made quite a bit of money from his recommendation. Yes, there are times that he will be wrong but when he does, he admits it, which I admire about him.

Jim Cramer is very knowledgeable in the stock market world and I trust his opinions and his techniques in choosing the right stocks. He is more of a fundamentalists analyst than a technical one.

There’s so much more to what Cramer can do for you than just his TV show. His website The Street.com has a few different services available that I know can help increase your knowledge and your portfolio. Action Alerts Plus is one of those programs that will give you the insight into why Cramer picks the stocks he does.

As a member, I receive his e-mails several times a day and they inform me as to what stocks he’s going to buy or sell before he does any trading. I also get a chance to study his portfolio.

The best part is that you can get a FREE two week trial of his service. If you don’t like it and want to cancel, no problem. During the two week FREE trail, you will be able to poke around and see what you need to do to make your portfolio a success.

I’ve been a member for a year and have made some good returns in a down market. With all the different places out there that want to get you to sign up before seeing anything, give Jim Cramer a try for two weeks of FREE and I sure you won’t be disappointed.

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During the time that I was working full-time, I didn’t have time to sit and watch the tickers during the day’s trading hours. I would sit home at night and catch up on the day’s news and do research on the stocks that I was interested in buying. If there were stocks that I decided to buy, I would set up a limit buy order, which was typically lower than the stock’s closing price. The next day after work I would come home to see how my trades went.

After I stopped working for someone else, I started spending more time during the day tracking the activities of the day’s events on Wall Street. I would be able to keep closer tabs on what was going on and react when I thought the time was right and the opportunity was good. I also started to take Jim Cramer more seriously.

I started to notice that my gains weren’t as good as they were when I was working. I wondered what was the problem. I took a little while for me to realize I had changed my trading strategy, without meaning to.  Since I was able to watch the stock market more closely, I was also exposed to the constant fluctuation of the share prices.

For example, let’s say I was researching stock XYZ  and it had a share price at the close of the day of $20.65. I would set the limit order to buy at $20 per share. Since I was at work I never really saw how the price reacted throughout the day. Once the price dropped to my target, the sale would trigger at the point and I would have my shares at the desired price.

When I was home and watching throughout the day, I started to react to the minute by minute moves. Let’s use the same example of stock XYZ. If the price opened up at $21.05 and then for the first hour or so of trading it moved up to $21.35, I would think that others had seen the same good numbers on XYZ and were buying up as quick as possible. I would set a limit order at $21.25 just to grab it a little lower than where it was. Wouldn’t you know that after the stock climbed, it started to descend. It would go down below where it closed the day before and in some cases, go below the original limit order price of $20 per share.

What I was doing is what I refer to as chasing a stock. Chasing a stock will do nothing for you but make you lose profits and wait longer for a turn-a-run after you’re in the hole by a couple of percentage points. Granted, the stock I would get into would go up well above the $25 dollar range and I would still make a profit, but like I said earlier, my profits weren’t as big as before.

If you want to be successful in stock trading, you need to understand your actions first. Many people don’t realize that the individual’s emotional state will totally effect the profitability of your portfolio.

Freebies For You!
Free Investing Membership
Free Subscription To ‘Futures’ Magazine
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