5. Find out about the Stock
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.
Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period), others in cash.
Another tip I would give you is not to invest in penny stocks for more than 20 percent of your total portfolio. To fight another war, you invest in making money and saving wealth. You raise the chances of losing your capital if you put too much of your capital at risk. You’re going to have more than enough money to make a healthy rate of return if that 20 percent rises. Penny stocks are volatile, so why place your money at greater risk, to begin with?