Were You Thinking of Buying Penny Stocks?

Were you thinking of buying penny stocks? You’re not the first to thinking that they will find the next Google while it is still less than $5.00. Many stocks that trade on the markets were once valued at less than that. To be considered as penny stocks, most will say that the stocks value is $5 a share and then there are others that say $1 or less. Whatever the difference, buying stocks that are low valued doesn’t mean that you’ll become the next Warren Buffett.

There are many brokers out there that will sell you stocks that are valued at $5 or less, but be advised that not all brokers should be trusted. Brokers make their money by selling stocks to you. They may not be very forthcoming to you with all or correct information. There are many online brokers that make claims of investing in a company and in a few short months and their gains are 500% or better. What they don’t tell you is that the company was one of a hundred that they’ve invested in. The other ninety nine companies have lost value or are completely bankrupt and they lost all the money that was invested.

Anyone that would tell you that they can and will make you money is not a professional. A broker may tell you that he has some insider information on a stock. Let me tell you now that that can’t be further from the truth. It is illegal for anyone with inside information to share it with someone who not on the inside. Executives of a particular company need to inform the share holders of anything he/she does in regards to buy or selling any of the company’s stock. Martha Stewart went to prison because she received inside information on her company and sold some of her stocks in the company.

When you’re thing of buying penny stocks, don’t listen to just anyone. Research the company yourself.

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buying penny stocks
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Beating Buffett With Today?s Penny Stocks

 

In 1936, one smart six-year-old purchased a few 6-packs of Coca Cola from his grandfather’s grocery story for a quarter per pack and resold each bottle for a nickel apiece. With that initial 20% profit he made of each 6-pack, the world’s richest man got his start in business.

Today, that same man owns $12.2 billion worth of Coca Cola Co. Obviously, I’m talking about Warren Buffet…

Everyone already knows all there is to know about him… or so they think…

Sure, we know that he went to Columbia to study under Benjamin Graham. And, that he’s one of the largest owners in many of the brand names we enjoy everyday — General Electric, Anheuser Busch, Bank of America, and of course, Coca Cola. He’s also the wealthiest man in the world, totaling $62 billion.

But there is something that only a handful of people know… He wants to be poor again.

That’s right! Back in 1999, he told Business Week “…it’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

The reason for his guarantee is simple… The best opportunities in the world are in small caps. If you have a tiny company worth 50 cents per share, it’s a lot easier for it to go to $1, as opposed to a $50 one going to $100. But that’s not the only reason Buffett loves small caps.

He also discusses his affinity for finding little nuances in companies that other investors don’t see right away. In a 2005 Kansas University interview, Buffett elaborates, “You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map – way off the map. You may find local companies that have nothing wrong with them at all…”

You can’t do that with big blue chips…

If a small company has a hidden asset that investors haven’t picked up on yet, it would take some work, but you could find it and make big money off of it. Finding a large company with a hidden asset is exponentially tougher.

There are a thousand reasons why smaller companies offer more potential, but at the end of the day, it comes down to one thing. How much more money can I make with small caps.

Buffett’s Small Cap Advantage
Through Berkshire Hathaway, Buffett brought investors gains of 10,000% from 1977 to 1992. But between 1992 and 2007, he only brought a 1,200% gain. Now, I know that still sounds pretty darn good (which it is), but the question remains, why did he do so much better in the first 15-year period of Berkshire than the second 15-year period? The answer is small caps…

You see, back in 1977, Berkshire was a much smaller company, with a lot less money to invest. So, Buffett was able to invest in smaller companies at the time, including American Express, Disney, and the Washington Post Company… Those companies were able to grow much faster than the ones Buffett is restricted to now. Now, Buffett has to look at companies worth tens of billions of dollars. In ’77, he could look at companies worth just a few hundred million dollars.

But to do even better than Buffett, your only chance is to look for companies even smaller. I’m talking companies flying way under the radar. Companies in the tens of millions of dollar range… Simply put, buy penny stocks because Warren Buffett can’t.

Sincerely,

Jim Nelson

Jim Nelson is the managing editor of daily e-letter The Penny Sleuth. The Penny Sleuth offers unbiased commentary from expert analysts and authors on Small Cap Stocks, Pink Sheet Companies, OTCBB and Penny Stocks.

How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World’s Greatest Value Investor

Product Description
A $10,000 investment in Warren Buffett’s original 1956 portfolio would today be worth a staggering $250 million … after taxes! What are his investing secrets? How to Pick Stocks Like Warren Buffett contains the answers and shows, step-by-profitable-step, how any investor can follow Buffett’s path to consistently find bargains in all markets: up, down, or sideways. How to Pick Stocks Like Warren Buffett sticks to the basics: how Buffett continually finds bargain… More >>

How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World’s Greatest Value Investor