vB Easy Archive - Penny Stock picks

Quote:

Originally posted by Her.ph
The 'Jed' post was kind of fun, but the author of it touched on a lot fundamental issues. Paul, it seems to me that you are in your teens, and getting your start now is an excellent idea. Don't be afraid to make mistakes.... but, you need to take it slow. A great site for beginners is http://www.fool.com/. The site owners, Dave and Tom, have written a book, made a PBS television show, and are strongly affiliated with Yahoo.com. They offer excellent insights by writing daily columns -- and I particularly recommend you look at their 13 Steps to investing: http://www.fool.com/school.htm?ref=LN

They have an excellent writing style, using a lot of humour, so you won't get bogged down in really dry economic stuff (well not too much).

My initial advice:
1) stay away from speculative stocks -- this means the penny stocks. These stocks have a strong risk of being delisted from the NASDAQ, and so you are going to find yourself in a strange realm were the cost to sell your stocks (over the counter) goes way up (while your loss also climbs).
2) Don't day-trade. Study a stock... especially look at articles by _in_print_ magazines, and in newspapers. See what influences its moves. Figure out if it is going to take advantage of any long-term trends, then buy and hold -- at least a year.
3) Don't start to live it up like a millionare if your stock doubles or triples. In 20 years of investing, I've owned at least two stocks that have 'tanked', i.e. lost over 50% of their value. Unless you are Warren Buffet, you will too. My dad has actually gone broke at least once in the stock market.
4) If you have to buy a 'tech' stock, buy one that is well established, and has traded publicly for at least 5 years... at least until you develop some experience.
5) Finally, opinions are like.... hmmm what is the word.... the-last-body-part-that-touches-your-food-on-the-way-out. Everyone has one. For every share sold on the market, another share is bought. Each trader is making an OPPOSITE bet. People who analyse stocks typically are biased -- sometimes because they work closely with (or for) the company they comment on. This is what drove the tech 'bubble'.
6) For extra credit, read a quarterly report of a stock you want to buy.

As for Calpine (CPN) (last at $12). It is an aggressive builder of gas generator power-plants. This is what I call a high risk stock. Most utilitities are pretty safe... but this one has a high risk, mainly because they are highly leveraged. That is, they have taken out humongous loans to finance their building of power plants. Their risk is that the interest payments on the loans and construction costs outpace the rate at which they get profits out of their plants.

Oh yeah, one more risk. That their primary cost, natural gas purchases, starts to skyrocket... but they are locked into long-term megawatt contracts are too low.

Good luck.