Finance Tips

Investing in small-cap stocks generally relies on fundamental analysis instead of technical analysis. Technical analysis, which relies on charts and graphs of previous company data to draw patterns, generally doesn’t have the necessary data to draw conclusions. Small cap companies also don’t have the stability of larger companies, and their stock and skyrocket or fall like crazy at a moment’s notice.

Instead, small-cap investors use fundamental analysis to determine how sound the business’s core principles are. A fundamentally sound business is much more likely to succeed than a fundamentally weak business. By analyzing the business’s management, business plan, and financials, a fundamental analyst can form a pretty good idea of whether or not to invest in this company.

Small-cap stocks are generally short term investments. Instead of purchasing a stock and waiting years for fruitation, small-cap investors generally buy their stocks in hopes that the stock will jump in price, netting them a nice sum of cash.

Investing in small-cap stocks is generally a more advanced tactic. New investors should stay away from risky investments like these, and instead focus on learning and applying a proven system. Once a novice investor has some experience under his belt, and a successful system to fall back on, then he can start dabbling in riskier methods of trading.

Small cap stocks are usually the ones that go on to make the enormous gains. It stands to reason it is much easier for a small cap stock to move up easier then an enormous blue chip stock. Most of the stock markets golden stocks were small caps. When they are “Blue chip” it’s time to look elsewhere.

penny stocks are stocks that normally hold a face value of less than $5. Many small companies offer these low-priced stocks to be traded on the Over-The-Counter-Bulletin-Board (OTCBB) and the Pink Sheets. This is mainly because neither the OTCBB nor the Pink Sheets require the same minimum requirements as the NASDAQ or the New York Stock Exchange (NYSE), set by the Securities and Exchange Commission. Businesses that are new or close to bankruptcy may issue penny stocks as a quick and easy way for these businesses to create quick capital and try to save the business from having to file bankruptcy in a court.

As you can imagine all of the aforementioned factors- low price, lack of stability and lack of standards- make penny stocks one of the most risky investments for anyone that is interested in playing or trading on the stock market. The fact is most penny stocks do actually end up in bankruptcy, but the lure of the great payoff if a company does succeed, is enough for many people to pursue the buying and selling of penny stocks. There are many other reasons why penny stocks are risky and it includes:

Low or poor liquidity: Since penny stocks are not traded very frequently, there may be difficulty finding a buyer. To interest someone in buying these stocks, the price may have to be priced substantially lowered.

Little or incomplete information about the company: Most of the companies that issue penny stocks do not have enough reportable history to learn a significant amount about them for those investors interested in doing research prior to investing their money. This is also due to the fact that the OTCBB and the Pink Sheets do not have to issue financial statements.

Potential for fraud: Penny stocks are often sold through spam email or off-shore brokers by con artists due in large part to the lack of regulation that penny stocks are not forced to abide by or suffer from.

Although some penny stocks are fraudulent and others are companies facing bankruptcies, this is not true in every case. Quite possibly some of the businesses will one day be listed on the NASDAQ or NYSE, but are currently struggling to meet the requirements. The opportunity to start with these companies from the very beginning can pay off in the end, given the growth potential. If you are able to get in on the ground floor with a company that does find success, you could ride all the way to the top.

It can be difficult determining which of these stocks has the potential for growth. The easiest way to become a victim of fraud is to do little, or even worse, no research. Obtaining this information can be time consuming and difficult, unless you have a very good knowledge of what it is that you are seeking. There are some companies that claim to have “inside information” about companies that issue penny stocks, but there is the possibility that this is a front in order to push a particular stock on an unsuspecting investor.

As an investor, you can either do research or take your chances. The fact that the stocks are very low in price means that if you do buy them, the chance that you lose a lot of money is small. If you are willing to take a loss and understand that the company could go under, they can be a fun and very interesting addition to your portfolio. It is important to remember that your odds are not very good. Most penny stocks will end up in a total loss.

It can be difficult to find a broker that will buy penny stocks. This is due in part to the difficulties in tracking them. There are some online brokers that specialize in penny stocks. Brokers are required by regulations to obtain written confirmation from the client regarding the transaction. In addition, the broker is required to give the client a document that outlines risks when it comes to speculating with penny stocks. Lastly, the broker must inform the buyer the amount of compensation that the firm will receive for the trade and the current market price of the stock. The client will receive monthly statements, which detail the market value of each penny stock that has been purchased.

As you can see penny stock s are an extremely risky investment but there are some instances where the rewards actually outweigh the risk associated with investing in an unknown company. The key is to actually find the right one.

When you look around your neighborhoods, it’s hard to find any good news. Friends and neighbors may have lost their jobs or be on short-time. There are foreclosed properties on every street. Shops and businesses have been closing down with increasing frequency. These are the signs of a real recession where unemployment and poverty stalk the land. The cause of all this pain is not hard to find. We have all been living beyond our means. When the banks and credit card companies offered us more money to borrow, we just took it. Why bother to save when the value of our homes only goes up? Let’s plan for our retirement by borrowing cheap money and buying stocks and other more risky investments. No-one ever loses if they follow the advice of the credit rating agencies. Well, we know better now. What goes up can also come down. What is given a triple A rating can be junk tomorrow.

In the midst of all this chaos, the credit card operators have been cutting back on the borrowing limits. This has forced pain on us for two reasons. Firstly, finding the money to pay down our debts more quickly means redesigning the family budget. Sacrifices have to be made. Secondly, the way the credit score is calculated depends in part on the extent to which we use the credit cards we have. If the limits are reduced, we look like bad risks because the amount borrowed is closer to the limit. We have less money available to borrow and cut down on card usage so we can repay faster. Put the two together and the score falls. This is a direct criticism of the methods used to calculate the scores. It produces a fundamentally unfair result during a recession.

This would not be a problem if the credit score was only used by banks and credit card operators. But it’s also used by companies to help decide whether to employ you, by landlords deciding whether to rent to you and by insurance companies deciding whether you are a responsible person. National figures show more than half all insurance companies use credit scores as a key factor in deciding your premium rate. This is extraordinary. There is only one possible effect of being in debt when it comes to the way in which you drive. If you cannot afford to repair your vehicle, you drive defensively to reduce the risk of an accident.

Some states like California and Massachusetts have banned the use of credit score for this purpose, but they are a minority. They cite discrimination as a reason for the ban. The majority of the population without access to banking services and credit cards fall into minority racial groups. When they do not have a credit score, they are forced to pay a higher premium simply because of who they are, not how they drive. So, when you are looking for affordable cover, get the maximum possible number of auto insurance quotes to find the best policies. If you live in a state which refuses the regulation of the auto insurance market, contact your local government representatives and tell them how much pain you are suffering because of this unfair use of credit scores.