Stock Market Investing Or Gambling – Which One is it?

Stock Market Investing Or Gambling – Which One is it?

When talking to lay people who have absolutely no clue about stock market investing, one theme keeps coming up repeatedly – “stock market is a gamble”. Well, it is beside the point that a lot of people who are “in the market” are totally clueless as well. For now let us stick to “stocks are mysterious” kind of lay people.

“I stay away from stock market, I don’t gamble” they say. And then they almost inevitably talk about bank FDs – which is the only known investing mechanism for them. Their well meaning, but totally useless advice is “stay away from stock market”.

Then they on to relate horror stories of how their friend or relative or more likely friend’s friend or cousin’s friend’s father or friend of brother’s colleague’s father managed to run an otherwise prosperous family to utter ruin thanks to gambling in the stock market. That gentleman gambled and the family paid for it. The individual anecdotes vary but the overall theme is constant – stock market, like horse racing, is evil and one needs to avoid it like plague.


To talk about stock market investing in a manner that they would understand would be a herculean task. There was a time when I used to try explaining how “investing is not gambling”. I would talk about “value”, how buying a stock is buying a business, how it could be thought of as being similar to real estate, how one gets dividend etc.

But these days, I generally don’t even try. Everyone is entitled to their opinion (even if incorrect). Whenever I encountered such kind of people, I politely try to steer the conversation away from stock market to other relatively benign ones where complete agreement is possible and likely (eg. Weather or Sachin Tendulkar. For instance, every summer, the  best bet is to proclaim “this is the hottest summer EVER” ).

I know and you know as well, that stock market investing is NOT quite gambling.

Well, actually that is an idea I killed recently. I now think of my investing pursuits as an activity of gambling.

To me an idea or concept is not something etched in stone – its relevance is in its utility. Does the idea or concept help me become a better investor (err. sorry. I meant to say gambler)? I don’t care what academics say or think, I don’t care what the popular folklore is; I don’t care if an idea sounds bizarre – all that really matters to me is the practical utility that it brings to the table. I am slow at giving up ideas (especially the ones that have worked really well) but given data, reasoning and insight, I can make dramatic shifts quickly.

One such shift is to think of investing as gambling. Why think of investing as gambling?

It breaks the concept of any structure in the market. Like Gunther says in The Zurich Axioms (Kindle Edition): Chaos is not dangerous until it begins to look orderly.

Gambling forces you to think differently. Preexisting concepts, ideas, notions and rules melt away. The only thing that matters is “are you making money” or “are you losing money”. It is the ultimate form of zen like investing. While one might have a repertoire of ideas on how the stock market works, gambling forces you focus only on the chips (your portfolio) – everything else is extraneous, irrelevant or tangential at best. There is no loyalty to any particular idea. A good idea is one that makes money. A bad idea is one that loses money. Period. End of story. There is no psychological baggage that one has to deal with. There is no steadfast, “this is my way”.

When I say I am a “value investor”, I am taking a stand that indirectly says “value is the anchor for performance”. And with that one idea, I inherit a bunch of other ideas as well:

1. Other things being equal, lower price is better value.

2. Fall in price is a good thing.

3. If fundamentals don’t change, one should buy more if price falls.

4. The more the discrepancy between value and price, the “better” a stock is.

5. Diversification is a good thing.

I am not saying that any of the above ideas are wrong or incorrect. I am just trying to highlight the subtle cascading effect of loyalty to a particular philosophy of investing. Thinking of one as a value investor is akin saying “This is how the stock market works. It works based on value.” Nothing wrong with it per se. Actually, it is a pretty darn good way of looking at things. It has worked for me amazingly well.

But I feel that having a “value based philosophy” can have limiting side effects as well:

Value investors will sometimes avoid buying an otherwise good company because it is not “value”.
When stocks move beyond the comfort zone of “value”, value investors either sell the stock.
As the stock price keeps falling, value investors are comfortable with buying more and more. This can, in some cases, prove detrimental.

There are different types of investing, most of them are valid and can be used profitably if one understands the core idea behind it well and follows it diligently. But inevitably being loyal to a philosophy becomes like being in a cult. And the more successful one becomes, the harder it becomes to accept contrary thoughts – even valid ones.

For instance, I had a very very tough time accepting the validity of technical analysis. It took me a loooooong time to get convinced about the utility of adding technical analysis to my value based stock selection. The main reason for the delay was my core philosophy of value investing scoffs at all things technical. My value investing philosophy was very clear in its judgment – it is the stuff for charlatans. Beware the snake oil salesmen peddling technical wares!

And all this in spite of me being quite deliberately and carefully open to new ideas.

If I had come across “technical analysis” before I encountered “value investing” and if I had become successful in some form of its application, I would probably have had even greater scoff for fundamental investors. “Price is the only thing that matters” would have been my core philosophy. And anything and everything that contradicted that core belief would have been “nonsense”.

And likewise, when one thinks of oneself as a growth investor, contrarian investor or momentum investor, one is basing one’s investing activity on a core premise. One automatically inherits a bunch of related ideas. This, in turn, leads one to become closed to any idea or concept that is not supported by the core premise.

Labeling oneself a particular kind of investor is like being in an intellectual prison. One becomes comfortable only the prison inmates.

Now, one might argue that there is nothing wrong with being in an investing prison – as long as it works. Even better if it actually works well. If it ain’t broken, don’t fix it. And I would heartily agree with such a conclusion. If what works, works for you, sticking to it is the best thing.

The reason I have personally chosen to drop the complete loyalty to any particular investing theme is:

1. Markets change.

While one can practice any form of investing quite well in the long run, there are times when one works much better than others. And sometimes (but definitely always) it is easy to spot alternative investing mechanisms that work.

2. More flexibility

If you read “Market Wizards”, you will find that it is comprised of a motley of people, some of them having diametrically opposite strategies. One buys only stocks hitting 52 weeks high while another has never held a stock that made a 52 week high. But both of them have done incredibly well. Wouldn’t it expand one’s universe of investible stocks if one allowed for such paradoxically opposite strategies simultaneously?

3. Participating in Manias

I am definitely going to participate and take advantage of the next mania. It might seem crazy to talk about mania when the bear is growling right now. But trust me, a bull market will come soon (how soon, I have no idea!). A mania will come again just as well. Again, when – I have no idea. But it will come with a mathematical certainty. Every generation goes through at least two manias before realizing what they are. When such a situation presents itself and if I am intelligent enough to spot it, “I want in”.

For someone totally used to averaging down, averaging up as an valid idea is tough to fathom. Even after giving it validity, it became tough for me to accept it. Even after accepting the idea intellectually, I found it very tough to internalize it. I had a torrid time internalizing “averaging up” as a strategy. It went totally against my core, long held and well cherished belief – “lower prices are good”. The lower the price, the more the value. Buy more as price keeps falling.

I always visualize and run through my strategies mentally before applying them. I try to “break” the ideas mentally before accepting and applying them. Even just imagining about myself averaging up on a hypothetical stock was a difficult task for me. There was no way I could actually go ahead and be successful unless I was psychologically comfortable with the new way of doing it. I did not want to drop my core approach of value investing – it had worked amazing well. I just wanted to augment it with strategies that went beyond value and sometimes contrary to it.

My breakthrough came when I started thinking of my stock market activities as gambling. In one swell swoop I was able to get rid of any and all kinds of psychological limitations. I was easily and effortless able to hold diametrically opposite thoughts about the stock market simultaneously – quite naturally even.

Advantages of thinking of investing as gambling:

With gambling as the core idea one gets tremendous flexibility towards things. One is no longer bound by any one idea. One becomes more responsive to what is working and what is not working. If there is a better approach, one that might currently work better, it is accepted with ease.

While thinking of investing as gambling, one is actually being very humble. One doesn’t have the rigidity of “I know it – this is THE way stock market works”. It is like admitting “I really don’t know how things work”. I “think” what I am doing is right, but if does not prove to be so, I am equally prepared to seek what does work.

So the next time someone mentions “stock market is gambling”, I am likely to agree with them. But equally, I hope to become a very good gambler.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
How Does the Stock Market Work

How Does the Stock Market Work

Getting start with Exchanges

So, now you have a general idea of what a stock is, why companies issue them and some of the basics of trading. Let’s move on to where to go to start trading stocks and get going with your own brokerage account! Stocks can be found on ‘exchanges’. This is where traders, both buyers and sellers come together to determine what price shares will be traded at. Some exchanges, such as the NYSE (New York Stock Exchange) are at a physical location while others, such as the Nasdaq, are electronic (or virtual) based. As exciting as it would be to be on the floor of the NYSE, screaming prices and running around making deals, I prefer the electronic version while sitting comfortably in my office. The entire reason for a stock market to exist is to aid in the trading of stocks (securities) worked out by the buyers and sellers. This way there is a risk reduction of the trading of the securities (stocks) by consolidating them into one place. Realistically, a stock market – either the NYSE or the Nasdaq – are a common meeting place for buyers and sellers to hook up to trade stocks. Let’s take a closer look at the different types of markets – these being ‘primary’ and ‘secondary’ markets. What is meant by a primary market is one that handles the initial offering of a stock or IPO (this is covered another blog post). A secondary market handles stocks which are not newly issued, these are the stocks that are truly in the ‘stock market’. At this point it is important to note that when you are trading stocks, you are not trading specifically with the company you are buying or selling, simply that you are working within a marketplace.

dividend-stocks (2)

A quick history of the major exchanges

NYSE | The New York Stock Exchange

This is probably the most famous of all exchanges, and has been around the longest in the professional sense. Sometimes called the ‘Big Board”, this exchange focuses only on a limited number of the most successful business in the United States. Companies such as 21st Century, Cigna, and Ford Motor Company. The NYSE is based on face-to-face trading, known as a listed exchange. This may seem like an old school way of doing things, but old habits are hard to break. They still employ ‘specialist’ who get the buyers and sellers together and place the orders at the trading posts. Now this is all great information, but not going to help you get started with your own trading because unless you want to fulfill a degree in financial management, we’ll stick online trading (you can still trade these stocks through your online broker… I recommend eTrade)

And in second place…. The Nasdaq

Really made famous by the fantastic technology boom of the late 90’s and early 2000’s, this is an ‘over-the-counter’ (OTC) market. This exists is a virtual market place (there are several others discussed later). All of the trading of securities is done electronically, congratulations on moving into the 21st century! Some of the stocks found on the Nasdaq include Kraft Foods, Intel, Sirius, Cisco, and Comcast. The difference in how stocks are traded on the Nasdaq (unregulated) as compared to the NYSE (regulated) is the Nasdaq depends on a ‘market maker’. This is a person who monitors and provides the ‘bid’ and ‘ask’ prices within a certain tolerance or ‘spread’ for the shares of companies they represent. This person gets the buyers and sellers together and keep a percentage of shares available in their market to ensure availability when traders come looking to make transaction.

And all the others:

There a bunch of other exchanges out there you can check out including a couple of the more notable ones being the the LSE (London Stock Exchange) or the HKSE (Hong Kong Stock Exchange) Now I don’t personally play in those markets, these would be considered FOREX (Foreign stock exchanges), but they can be extremely lucrative (more information on FOREX markets here) The stocks I mainly focus on are Penny Stocks… and why would I do that? Simple answer: a 30% gain is a 30% gain, whether the stock goes from .03 to .039 as it is if it goes from $30 to $39. The point: I can make a whole lot more trades for substantially less money and make the same gains! The risk: there is little to no regulation in these markets. The bottom line always comes down to getting trained and making educated decisions.   Take away: Get your own etrade account set up here Highly suggested: Get up to date tips on penny stocks here For those of you ready to REALLY get serious check out Autobinary trading Thanks for reading and taking action!

Posted by Judy Romero in Investing, Investment, Long-Term Investing, Stock, Stock Market
How to Find Stocks to Trade

How to Find Stocks to Trade

Just how do we go about finding a great trade?

If you’re getting your trading ideas from friends, your barber or individuals you meet in your everyday life you are up the creek without a bank account.

The next place on the list of worst places to get trading ideas would be free financial chat rooms. Most of these are either the blind leading the blind or a pump and dump scheme.

The blind leading the blind is a room full of neophyte traders (also called green peas) getting ideas from financial websites, magazines, their brokers, etc. Some of these may actually be good trades but nobody in the room knows where the entry, stop loss or exit should be.


The very worst are the penny stock trading rooms. These may be chat rooms, email alerts, newsletters or whatever. The slower the notification system the worse they are.

Penny stocks are worthless stocks. That’s two words. Worth—less. Most often worth less after you buy them. The reason they are a dime or a quarter or even a buck is for a good reason. They don’t have a viable competitive product, terrible management, not enough cash to run the business or a myriad of other fatal business problems.

Yes, occasionally one will take off, but that is attributable to a change in circumstance within the company. If you find one of these before everyone else knows, please let me know and I will join you in that trade.

These are favorites of the pump and dump crowd. If a stock is only a dime a share even someone with only a few hundred bucks in a trading account will buy thousands of shares. Pump and dump is not limited to penny stocks. If you can’t verify a story through normal news channels it’s probably bogus.

If the pumper is highly followed all they have to do is say they bought and everyone else jumps in. Normally they heard a rumor, an employee told them things are about to pop, (blowup???) or as many reasons as you can dream up. Your buys, and hundreds or even thousands of others, drive the price higher, usually very swiftly.  While you’re buying the pumper is selling you his shares.

Brokers want you fully invested so they can draw their commissions. Fully invested means all your capital is in the market. They also believe that you cannot time your entries and exits and thus believe you should stay in the market even if the indices fall by 50 % or more. They seem to think that if the market is down 25 % and your account is only down 22 % you are doing well. They also are true believers in a diversified portfolio. Whether you are in an index fund (Dow Jones-S&P-Nasdaq or many others) or in a diversified portfolio (15 to 100’s of stocks) the broker’s primary concern are their commissions.

All this and more before you ever make a trade.

As a value trader I may have eight or ten positions open but there is no relationship to diversification.

In this series of posts I will attempt to explain to you the various factors I am paying attention to as I enter and exit a trade. These will not be real time trades but the entries will have been posted in real time.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
What are Penny Stocks? In Depth, but Simple Explanation!

What are Penny Stocks? In Depth, but Simple Explanation!

So I sorted out searches by volume and I got my first task – to answer first question people type about penny stocks into Google which is very straightforward “what are penny stocks?”.
So what I did first, I took two explanations given by Investopedia and SEC websites. I took the commonalities for the provided term and got into more details.
So the main points when answering the question “what are penny stocks?“.
Penny stocks are small companies’ stock. This is very true and to be more exact there is financial lingo term to describe small companies’ size by market capitalization. Professionals call small stocks as small cap stocks. And there a smaller bracket – nano cap stocks and micro cap stocks which are even smaller than small cap stocks.
So when you talk about penny stocks most of the time you talk about nano cap stocks, sometimes micro cap stocks (stocks with market capitalization under 300 million dollars). Why is that? Because size is directly linked the amount of share outstanding which directly links to amount of floating shares.
Now to get to the core the amount that can be traded on an open market is called float or shares float.
So when you have small size company with the small amount of shares outstanding which give us an even smaller amount of floating shares (but not always) this gives us as the result – a small supply of stock. So when we have a small supply of stock and event with high demand for that stock we encounter crazy price volatility which is what penny stocks are well known for. Put simply they are known for huge price swings which are known as volatility. Basically, too many participants are chasing too few stocks so this makes price of a penny stock to move 20%, 50%, 100% or even bigger % per day!!!
But remember that huge volatility is double edge sword – it can provide insane gains but it comes with higher risk.


Penny stocks have a low price. This is true and it is one of the features of a penny stock but not always while even penny stocks trade for pennies or few bucks it sometimes doesn’t end up only at these levels. Penny stocks can even be traded for 10 or 20 dollars per share. What helps to increase this price so drastically? It is the supply of a stock. So again we get back to first point that size matters and only low supply can make such insane moves possible.
BTW Ford motors traded for 1.5$ after 2008 crash. Can we consider this company small? Of course not, so the price is just one of the features of a penny stock.
Penny stocks mostly trade OTC (over-the-counter). Yes, on OTC markets you can find many many penny stocks, but as well I need to tell you that there is as big amount of small companies that trade on regular stock exchanges. And this is what I would recommend to everyone interested in trading small companies – trade nano and micro cap stocks on regular stocks exchanges, while exchange-traded penny stocks are more regulated, have better liquidity and it is easier to find a decent broker to trade them. As well stock that trades on regular stocks exchanges need to disclose more information to the public regarding it financial performance. You get the point! If you are interested in this niche trade penny stocks on regular stock exchanges. Let’s get back to the point now.
Why small companies tend to choose to be listed on OTC markets? Simply due to lower capital that is needed to be listed there and as well because companies need to satisfy less listing requirements than when listing its stock on a regular stock exchange.
BTW because OTC markets have minimum standards for stocks to be listed there is more cases of stock fraud happening there, so remember this.

So what are penny stocks?
To summarize here, penny stocks are stocks of small companies that are highly speculative. Penny stocks are being traded OTC and on regular stocks exchanges. They have low price and low supply of a stock which makes them very volatile.
Now to finish here, I personally think that the main denominator of a penny stock is the size of the company and its market capitalization. Even other points are valid and get us extra features nothing better defines a penny stock as the size of the company and its market capitalization. Period!

Last words
Now if you are interested in fast moving stocks and you like to be in the epicenter of a new emerging and trending industries like marijuana or blockchain industries, this is where it all starts. Micro and nano cap stock niche and in general small cap stock niche is the place to be.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
Risk and Reward in the Stock Market

Risk and Reward in the Stock Market

With so much buying and selling occurring in day trading, things can get very confusing. A day trader must keep up with all of their trades and make sure all of the transactions have been completed. Just because a trade has been submitted, does not mean that it will immediately effect their account. Watching out for details when day trading is extremely important. Overlooking a couple of stocks can be costly for a day trader.
While stock market charts are important for any trader, they are especially important for day traders. Using a chart correctly can indicate what the short term move of a stock is going to be. Since a day trader is trading daily, they really need to know what the stock is doing constantly. Even though reading a stock’s chart is not foolproof, it can help a day trader confirm any feelings that he is having about a stock. There are many different technical indicators a day trader can use. The more indicators that signal the same move, the better a day trader can feel about their current investment.


Stock options are a great way for a day trader to make money. This is because options eventually expire and need to be watched constantly. Stock options are not a long term investment because they will lose their value. Short term traders can watch the stock options to make sure it is moving the direction they need. If it is not, they can trade and find a different invest. Since day traders are trading often they will also be able to see if options are over or undervalued. Even if the stock has not moved greatly, if the stock option they have purchased becomes overvalued they can turn a profit. This could simply be because of rumors or news that is currently surrounding the stock.
Risk and reward ratio.
With some stock options overpriced, a day trader can have a hard time making a large profit. It is important for them to compare stocks to see which has the largest reward with a limited risk. To make money with some stocks, they must move dramatically. Others can make a small move and give the day trader a large payoff. By comparing different stocks, they will be able to differentiate which would be a better fit for them. The more stocks that are researched will better their chances of finding their best investment. Once an investment with the right risk to reward ratio has been found they can begin to invest. But even after investing it is important for them to continue to research. What is a great stock one day can be horrible the next.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
Why Sector Analysis is so Critical to Profitable Investing

Why Sector Analysis is so Critical to Profitable Investing

An accurate Sector Analysis has been estimated to account for up to 80% of the price moves of individual stocks.

Ever wonder why your stock is going down in value while at the same time the broad market is increasing in value?  If this has happened you might own a stock in the wrong sector.  Sector Analysis might be able to keep you out of that situation.

Some short term differences in price direction vs the broad market should be expected.  However, some seasoned traders and investors – including professionals – have estimated that as much as 80% of the price action – either up or down – can be attributed to the popularity of the stocks sector.

All the stocks trading in the US stock markets can be assigned to a specific sector.  Think of a sector as a “grouping” of stocks that are essentially in the same business.  Sector Analysis is a process that identifies which stock market sector is performing above average.

There are many companies that have split the stock market into their own divisions.  Perhaps the most well known allocation has been defined by Standard & Poors.

Standard & Poors have split the market into 10 broad sectors.  These sectors and the approximate percentage of the market allocated in each sector is shown in the table.

The S&P sectors are further subdivided into Industry Groups as shown in the following table.  These 10 sectors and 24 industry groups are further broken down into 68 industries and 154 sub-industries into which S&P has categorized all major public companies.  As you can see, Sector Analysis can be performed at many levels

Industry Groups



Capital Goods

Commercial & Professional Services


Consumer Discretionary
Automobiles and Components

Consumer Durables and Apparel

Consumer Services



Consumer Staples
Food & Staples Retailing

Food, Beverage & Tobacco

Household & Personal Products

Health Care
Health Care Equipment & Services

Pharmaceuticals, Biotechnology & Life Sciences


Diversified Financials


Real Estate

Information Technology
Software & Services

Technology Hardware & Equipment

Semiconductors & Semiconductor Equipment

Telecommunication Services
Telecommunication Services



Although well known, S&P is not the only company to divide the stock market into sectors and industry groups.  ValueLine, MorningStar, and many others divide the stock market up in different ways.

But don’t get hung up on which companies sector definition to follow.  Sector Analysis is only designed to do one thing well – and that is to compare the performance of one stock- YOUR STOCK – to others in the same or similar business.

Sector Analysis prior to selecting what stock to buy is what is vitally important.

Profitable Investing uses the stock market sectors as defined by DorseyWright and Associates (DWA).

The sectors grouping that I prefer to follow are defined as:

Aerospace Airline

Autos & Parts




Business Products






Foods Beverages/Soap

Forest Prods/Paper



Household Goods




Machinery and Tools


Metals Non Ferrous


Oil Service

Precious Metals

Protection Safety Eq

Real Estate



Savings & Loans





Textiles / Apparel

Transports / Non Air

Utilities / Electri

Utilities / Gas

Wall Street

Waste Management

Within all the investing strategy decisions you’ll find on this web-site, I will be referring to this allocation and description of stock market sectors.

After we have digested the sector performance, we then select the top performers in that sector – these stocks become our buy candidates.  We’ll always select the best performing stocks in the best performing sectors, in a market that’s trending upwards.

The overriding purpose for using stock market sectors and sector analysis is to compare the price performance of one stock to its peers in the same group.

So remember, Step 1 is to perform Stock Market Analysis, Step 2 is to perform Sector Analysis.  Our goal is to own the best performing stocks in a strong sector, in a stock market that is increasing in value!

That’s a formula for profitable investing!


Sector Analysis References:

When I started refining how to perform sector analysis, I drew heavily from the information in two books.  The first by Vincent Catalano titled Sectors and Styles offers an investment
technique that takes many economic factors into account when performing Sector Analysis. He illustrates how you should index a portion of your stock portfolio to the market, while investing another portion in industry sectors that are likely to outperform the broader market. To determine “hot” sectors, Catalano provides a framework for analyzing government activity, the economy, and market activity.

Another favorite sector analysis book is written by Timothy McIntosh entitled The Sector Strategist presenting a revolutionary new investment philosophy that redefines how we view sector investing.

For additional Sector Analysis information visit the Sector Analysis page.

Posted by Judy Romero in Stock
11 Ways to Trade Penny Stocks

11 Ways to Trade Penny Stocks

Penny stocks are alluring, the reason why millions of people worldwide choose to invest in them. They offer high rewards with minimal investment. The low investment leads to people also treating penny stocks as lotteries. However, these people often hand over their money to more strategic penny stock investors. So, do you want to be in the group that hands out money or the one who makes big bugs with penny stocks? Without a doubt, the latter, follow our tips to trade in penny stocks and you should do better than most investors.

Penny stocks are shares of companies that are new or upcoming, which makes the shares highly speculative. Traditionally, they mean any stock that is priced less than a dollar per share, but more recent exchange definition states penny stocks as stocks that are less than $5 per share.

Penny stocks

When trading in penny stocks, you should respect the risk associated with the trade, avoid any hype, and follow the tips we have shared.

Tip 1: Don’t Buy Into the Hype

The first tip we want to share is about the hype involved in penny stocks. In trading, penny stocks are probably the riskiest in terms of scammers. You should not believe the stories you hear on Facebook, where a housewife or a student made $100,000 investing in penny stocks or any other similar stories. You may also receive anonymous emails with penny stock tips. The people sending these emails aren’t doing it with the good of heart but they are promoting a shading company that’s likely to drown your money. The emails can also come from a website where you exchanged your email ID in exchange for the touted ‘valuable information’.

Tip 2: Don’t Hold the Share Too Long

Most new investors who make a good profit from penny stock get greedy and ultimately end up losing money. A high fad penny stock can quickly turn low fad. When you have made a profit of 20% or 30%, immediately sell the shares because the gains can quickly turn into a loss.

After making a good profit people wait in the hopes of further increasing the profit, which can happen in some cases but the risk is too high. Sell the share after making any profit and move on to the next.

Tip 3: Don’t Believe the Companies

Penny stock is a dog eat dog world. You should not trust anyone and the least the companies who want you to buy their stocks. There are fewer legitimate businesses behind the stocks. The companies want you to buy their shares so they can raise capital and stay in business. In the worst case, there is no company behind the penny stock and it’s a scam to enrich the insiders.

These companies run large promotional campaigns with press releases, ads, and other marketing techniques to lure unsuspecting investors to buy their shady shares.

Tip 4: Don’t Short the Shares Yourself

Shorting shares is difficult. A share may seem alluring due to its pumped-up price, but that can easily be due to a few newsletters that got large clicks or people bought into the hype. Such shares will not sustain and the price will fall leaving you with a huge loss. Leave shorting to the pros.

Tip 5: Don’t Trade in Low Volume Penny Stocks

Ideally, you should look for penny stock that trades a minimum of 100,000 shares in a day. If you buy a share with a low trade, you may not be able to sell it. That would be a tough spot even when you have made a profit. You should also pay attention to the per dollar value of the share. Look for shares that are valued higher than 50 cents. Penny stocks that have less than 100,000 trade per day and are valued at less than 50 cents per share are not liquid enough and sustainable.

Tip 6: Cut Your Losses Fast

Every investor makes mistakes and wrong bets, but cutting your losses in time can save you thousands of dollars. Identify you have made a mistake and cut your losses as fast as possible. If you are into buying pumps, allowing the losses to spiral can deal large financial damage and take you out of the game. If you are trading with a small capital, it only takes one bad decision to end the game for you. So, after you have made a mistake sell fast and start anew.

Tip 7: Practice with Paper Trading

If you are just starting out with trading in penny stocks, it’s best to test your strategies with paper trading. Paper trading does not involve real money. It uses the real stock value to test your strategies. Online websites allow you to paper trade for free. Once you have established your investment technique through paper trading, you can move to real trading.

However, don’t jump the gun and invest a large amount of money at once. Invest small and as your investment stars to pan out increase the amount or keep investing the profits from previous investments.

Tip 8: Don’t Buy OTC Penny Stocks

Any successful investor would advise you to stay away from over the counter (OTC) penny stocks due to the lack of accountability and transparency. Exchange such as NASDAQ or NYSE has strict guidelines that companies need to adhere to in order to be listed. These guidelines include complete financial transparency and maintaining the per stock value above $1. Companies that fail to abide by the rule list their stock in OTC exchanges.

Companies listed on OTC do not have financial transparency and may be in a bankruptcy filing, which makes them a bad investment. The OTC market still functions because people simply do not know much about penny stocks and they treat them as lotteries or are buying due to a tip from a shady broker. OTC stocks can be tricky but we do trade them occasionally, we do perform in-depth research whenever we do. Our findings are general open to share on our free stock alerts.

Tip 9: Stick with What you Know

The best penny stocks are the ones you know about and not the ones you hear from a friend or relative. If you are in a profession such as software developer, it’s likely you know more about tech companies than most people investing in penny stocks. Choose a company that is familiar to you and has potential in the future. Buy stocks that have been rising in value for a long time, but not due to pump and dump schemes.


Tip 10: Don’t Trade Large Volumes

You need to be careful about trading large volumes. If you have bought a large number of penny stocks from a company selling the share when the stock is taking loss becomes difficult. As a general rule, you should not trade more than 10% of the share’s daily trade volume.

Tip 11: Don’t Get Emotionally Attached to a Stock

The worst mistake you can make trading penny stocks is getting emotionally attached to a particular stock. Companies would make big promises and would present themselves as the next Google or a company about to bring a revolution with advanced technology, but rarely such promises come to be true. You should remember why you got into penny stock i.e. to make quick profit and exit.

Final Thoughts On Penny Stock Trading For Beginners

Overtime penny stocks have had a lot of bad reputation and for good reason, but there are also people who have made a lot of money fast with penny stocks. The difference lies in education. Some people treat penny stocks as lottery tickets, while others have a more strategic approach. People who understand the risk and take calculated decisions are the ones who gain big. If you follow the tips we have shared in the post, most hurdles in penny stock trading will be eliminated and you will have the possibility of making large sums of money.

Posted by Judy Romero in Stock, Stock Market

A Beginner’s Guide to Low-Risk Stock Investing

Stock investing can sometimes seem quite mysterious, so much so that it often feels like a quest. You have to survive all the obstacles, and you have to use the right language. In addition to that, you also have to make sure that it stays available for valuable members only.

Inexperienced investors can easily put the entire industry in danger. However, most of the time they are a danger to themselves. Because of that, there are regulations that protect them so that they don’t get cheated out of their money. And, those regulations usually work well.

Nevertheless, when it comes to investing, a small group of people is the one that’s benefiting from your ignorance. Those are financial advisers, brokers and others who want you to ask them for advice – and pay a substantial fee for it.

Therefore, to help you, we’ve compiled a list of things you should know about investing. These facts will also help you if you are investing to save up for your retirement.

If you want to learn even more, you may want to consider paid education. This Warrior Trading Review explains how traders can benefit from joining a paid trading community. You will get access to a chat room with experienced traders and you will generally get access to their watch lists.

1. When you buy a stock, you buy the company as well

You’ve read that correctly. However, don’t get excited too soon. When you buy the stock, you are also getting more responsibility. The company has to inform you about all material changes that happen to it, but you also have to read about it and make your own judgment.

2. There are two ways you can profit

You might think that the only way to profit is by buying a stock at a low price and selling it for a higher one in the future. That’s called capital appreciation. However, you should know that there are also dividends, and they can be an excellent source of income. Combine that with the capital appreciation, and you have a thing called “total return.”

3. The stock value goes up and down

Never forget one simple fact: what goes up can eventually go down. And, let us remind you that going up serves no purpose if it doesn’t beat inflation. So, if you are planning to limit yourself to just one approach – think again. For example, value investing is when you buy a stock for a seemingly depressed price. Meanwhile, momentum investing is when you buy a rising stock and hope everyone follows your lead. These strategies can sometimes work, but the timing has to be perfect.

4. You cannot avoid taxes

Unless you have a qualified retirement account with stocks inside it, you will have to pay up for every gain you have and for every dividend you receive. Therefore, your total return has to go above the taxes and the inflation.

5. Volatility is a real thing

In contrast to No.3, here we’ll mention a thing or two about volatility. Whenever a security goes up and then drastically down – that’s volatility. It often happens to stocks, and it’s a fast movement on the market. Unlike bonds, stocks are rather volatile, which is why they can rise in value over long periods of time.

Lastly, the final thing you should concentrate on is diversification. Most companies thrive over the years. However, if you own a significant amount of stocks in a soon-to-be disaster company, you will lose everything. Therefore, it’s best to diversify and hold a variety of individual stocks. That way, you can protect yourself from bankruptcy, and you will be less affected when a company goes under.

Posted by Judy Romero in Stock

Investing in Dividend Stocks: A Quick Guide

Did you ever want to learn how to make money from investing in dividend stocks? Well, we are here to give you a quick walkthrough that will help you find dividend growth stocks that are safe picks. So, let’s jump right into it.

What is the first thing you should focus on while evaluating a dividend stock? Well, we would recommend focusing on the sustainability and viability of the dividend.  The primary focus should go straight to having secure payments every year. No matter what happens during the year, your payment should be safe.

And, to keep up with the payments, the company has to have a steady cash flow. Logically, lack of it poses a danger to a dividend. If the company’s cash flow is weakening, one of the first costs that will be cut down will be dividends. And the last thing you want in your portfolio is a dividend stock that is failing to pay dividends. That is something that happened to several companies in the energy sector. Chesapeake Energy and Linn Energy both had to remove dividends altogether.

So, what do you need to do to locate a “safe” dividend? Well, checking the cash flow is the most important thing to do. Try to find a company that can afford to cover the payments at least two times over. Some companies are willing to sustain dividends and go into debt, but that is not a sustainable practice.

You should also check the dividend history of the company. Of course, there are no guarantees, but a lot of companies have made it into a habit to raise their dividends each year.

And lastly, it is always a good idea to check if the yields are trending upward, especially if they are nearing the all-time high.

Of course, you are going to want to run some analysis tools. Mainly, most of the basic research that you would use while picking regular growth stocks applies. However, you should add a layer of analysis that focuses on fixed income.

As a dividend stock investor, you should focus on the outlook for the company rather than on individual trades. Not to mention that you should always consider long-term positions. And this is where the difference lies. Most retail investors would tell you that a long-term position is a position you hold for a month. Not for you. The minimum period for holding a dividend stock in your portfolio is a year. And you should usually plan to hold it for a lot more than that.

The drops in the value are also not as critical as they are with regular stock. For example, if the stock falls from $60 to $55, that is not that big of a deal as long as there are no fundamental changes. The dividend is there to cushion the losses and make it a lot easier for you to ride out the low.

Now, we should probably strengthen our understanding by going through some of the concepts of dividends.

We should start with the fact that they are usually paid quarterly, and can be adjusted at every interval, which means that the dividend can grow, fall, or straight out disappear at the interval. That is why you should look for a company that raises the payout consistently.

Now, we should talk about the yield. If you have ever heard someone say that a particular stock comes with a dividend of 5%, they were talking about the yield. The yield is a ratio of the payment the investor gets every year from the dividend stock.

The next factor we will mention is the ex-dividend date. Essentially, this date is the cutoff for the interval payment. So, if you want to qualify for the period dividend, you should make sure to make your trade before that date. So, if you see a share that opened slightly lower than usual, it could be due to the ex-dividend date.

You should also remember that you might have to wait for four weeks after this date to receive the payment. That means that if you sell your shares before this date, the one who bought the shares will receive the dividends. However, if you sell them on the ex-dividend date, or even after, you can still receive the payout. Of course, you should hold the position for a lot longer than weeks, but if you are looking to sell, this tip might get you a bit more money overall.

Posted by Judy Romero in Stock

Investing in Stocks for the Long Haul

It’s often said that the masochist and the optimist are way more similar than one would have thought. Individual investors often find themselves wondering which one they resemble more.

Even those who consider themselves optimists have to admit the following: investing won’t be easy in the next couple of years. According to Ralph Wanger, ACRNX’s manager, a period of fairly tough markets is ahead of us. Only those who have substantial skills are going to prevail.

If you are still here, reading financial publications, then the mighty market hasn’t scared you away. That’s great news since stocks remain every investor’s best bet for the long run.

Jeremy Siegel stated that the best bull market ever lasted from 1982 to 2000 when real returns were around 15.6% a year. When you compare that to the historical rate of equity returns, that’s more than double. Regression hasn’t been enjoyable.

But, you can still make money. It’s just that the rules have changed, and some tried rules have become vengeful now. It’s better to throw the old playbook away and adjust to recent changes. Long-term investors can succeed with the help of the long haul in the new era, regardless of possible market changes.

Firstly, let’s go over the rules of the game.

Know Yourself

Numerous investing strategies exist – deep value, active trading, buy and hold, index investing, etc. Before doing anything else, investors should determine which type exactly they are.

According to Michael Mach, EHSTX’s manager, to be a long-term investor, you have to know yourself. He claims that the key is to combine a rational investing approach and your personality. A consistent application will result in success.

If you don’t mind taking a large risk, and you can keep your cool in periods of great volatility, you can probably handle a risky strategy. As the majority of investors start to lose their cool, the long run often focuses on strategies designed to avoid excessive risk and marketing timing. Instead, longer time horizons and fundamental analysis are favored.

One more thing, be honest with yourself. You have to know how much time you will sacrifice to track your investments. For example, avoid taking big stakes in a couple of companies in the quickly-evolving biotechnology industry, if your plans don’t include keeping up with sector development.


When it comes to investing, diversification is in all likelihood the simplest truth there is. Also, it is most often misconstrued. Back in the 1990s, asset allocation used to mean 100% stocks for many people, and around 90% of those stocks were large-cap growth.

Basically, all investment vehicles experience ups and downs. But, a large number of individual portfolios are made of holdings that all move up at the same time and then go back down again at the same time.

The founder and CEO of Legend Financial Advisors, Louis Stanasolovich says that investors need diversification. By that, he means that they need to diversify away from large-cap domestic equities. According to him, when you buy two Janus funds, three Fidelity funds, American Funds Growth Fund of America, and an S&P 500 index fund, that’s not diversification.

In order to achieve true diversification, investors have to assemble portfolios by using investments that have lower correlations to one another. Here’s an example: for equity holdings, you should consider paring back your large-cap weighting and improving exposure to international stocks, emerging markets, real estate investment trusts, and smaller-cap stocks.

The Reinvention of DIY Investing

One of the supposed hallmarks of the bull run from the 1990s was the rise of the DIY investor. When the stock market bubble collapsed, some experts declared the DIY movement dead.

There’s a lot of irony in that. Investors got over their heads in the recent years mainly because the notion of DIY investing was cast aside, or just poorly redefined. DIY investing isn’t just reading The Wall Street Journal or watching business news, listening to analysts or getting inside tips from your broker; it’s much more. It requires hard work and doing your research before making any decisions. If you just buy a stock that someone mentioned on CNBC, that isn’t doing it yourself.


To reinvent DIY investing, remember what Peter Lynch said in 1989. He advised investors to stop listening to professionals, ignore the recommendations of brokerage houses, hot tips, and suggestions from their favorite newsletter, but do their own research instead.

However, this doesn’t mean that one should disregard all stock analysts, mutual fund managers, business news experts, etc. There are various trustworthy and intelligent people who can help you become a better investor. What’s more, countless are at your disposal in the Internet age. To put it simply, trust people, but verify. These resources should help your research, not replace it.

Passion For Investing, Not Investments

To become a successful DIY investor, one will need plenty of fundamental analysis, analyst reports, going over company statements, and online and offline research. Passion is a must. However, try not to be too passionate about your investments. Fear and greed are not great emotions to be driven by, at least not when investing. So, focus on being unemotional about your investments.

Emotions shouldn’t get in the way, that’s a common truth. It is even more important to remember this during unstable times, when there are a lot of sudden moves on the market, and no sustainable upward trend. Remember to stick to your guns, don’t just follow blindly.

In September 2002, many people thought the world was coming to an end, and wanted to sell everything. Then, in October, tables turned, and they wanted to buy everything. Neither of these two ideas proved to be sound.

The New Era

Let’s take a look at the market peaks of 1929, 1966, and 2000 to get a sense what the new era could look like. It wasn’t until 1954 and 1982, respectively, that stocks returned to their previous heights. Take inflation into consideration, and that’s 1955 and 1994, according to Wanger.

We can’t be sure if another quarter of a century will be needed to get back to the levels from March 2000. Either way, investors have to realize that getting rich quickly isn’t the right recipe for success in this market. Also, overburdening technology isn’t the best idea either.

When the energy bubble burst in 1980, here is what happened to the energy sector. For energy stocks, it was the best of times and then the worst of times. Similarly, technology stocks suffered, and they may keep sliding.

However, this shouldn’t make you avoid all tech stocks. Companies like eBay and Qualcomm managed to keep record earnings and revenue growth during the industry’s worst downturn. In the meantime, giants like Microsoft have made themselves more appetizing as stable performers by ushering in dividends. That, would, however, go against all bubbles in the 20th century, in case tech was to recommence leadership in the new era. In order to stay safe, keep technology light.

Nobody can know for sure what the next decade holds. Also, it’s impossible to say if stocks will experience a fourth down year in a row for the first time since the Great Depression. If we rely on the post-bubble history as an indication, quality companies could outperform.

Marshall Acuff, the founder of AMA Investment Council, says that everyone should stack as many things in their favor and cut down speculations to a minimum. What’s important is the price, a clean balance sheet, a dividend-paying stock, and a high rate of return. He also says he’d keep his growth, as well as valuation/risk growth expectations conservative. Being in a hope category isn’t a great choice.

The 7% Solution

It’s natural that expectations get out of order with the 18-year run of 15.6% returns. Over a very long haul of 200 years, stocks return around 7%, according to Siegel’s research. Both companies and individuals could anticipate the broader market to give back the historical average over the course of their investing lifespan.

However, don’t expect double-digit returns or you’ll be disappointed.

When you get your expectations right, you will realize that 7% returns aren’t that bad. Your money will double every 10 years. Those who aim for a more sensible 7% return are less prone to digress from the investing game rules. Lower your expectations, and it will be much easier to be an optimist, rather than a masochist.

As this text column started on a negative note, here’s a bit of cockeyed optimism for the end: The 2000s decade may be the same as the 1930s, meaning the worst for investors.

There was only one decade when market averaged a loss was (from 1930-1939), resulting in a negative 0.05% average yearly return. So, how is this exactly good news? Managing director at Eaton Vance, Larry Sinsimer, draws attention to the fact that the average annual market return has been a negative 14.5% this decade. Thus, to equal the 1930s, the stock market will need to give back 5.6% per year on average. In order for a decade to have a flat return, the markets would need to give back 6.5% per year.

Posted by Judy Romero in Stock