Speculative Stocks – Navigating To Cash In
Often as you search for stocks via Google or any other search engine, you may come across various stock promotions. These “featured” stocks may or may not be paid advertisements, but the bottom line is increasing investor awareness for potentially undervalued stocks.
There are many reasons that a stock may be hawking itself this way:
- The company is interested in attracting capital or developing new business relationships in order to expand their company, and are promoting it to attract attention from customers, vendors, distributors and investors.
- The CEO may see it as a way to raise his status and it tickles his ego.
- The company or a third party is trying to raise the stock’s value and/or trading volume in order to increase liquidity.
In the case of smaller companies this new investor attention often results in rapid price increases, but may be followed by a crash when too many shareholders try to cash out and find few buyers. Some investors can lose significant percentages of their investment in these situations.
Regardless of the reason for increased investor awareness, there are ways to cash in on such promotions – not every one, but enough to profit over a series of trades.
First of all, we send a stock tip to our members on select stocks we find a stock that are undervalued and gathering interest, with information on that stock and the company. Read our reports carefully and do your own due diligence to make sure that you understand the possibilities for a profit and the risk of a loss.
You should also consider limiting your bid price for the stock. Getting caught up in the excitement may cause you to buy stocks near the peak, which may leave you stuck in the crash. Remember that these stocks tend to bounce around in price for days or weeks before the price really goes up, which gives early investors a chance to buy the stock at a reasonable price. You may also miss out on the opportunity, but missing out on what could have been a profitable trade (viewed in hindsight) is better than running after the stock on the way up and losing a lot of money in the crash.
For selling, you may set an exit price at the time of buying or consider taking small profits (30-70%) on the way up. It has been said that Warren Buffett made his portfolio by little win after little win. Rather than think “buy low, sell high”, think “buy low, sell higher”. As is the case, especially for speculative stocks, nobody really knows what the “high” point is until after the fact – they can only make predictions. In other words, if the stock price rises well over your sell point, don’t let greed guide you towards a stupid mistake. It’s always better to get out while the goings good.
Another tool at your disposal is your broker’s stop-loss option. This gives a safeguard to make sure that your stock sells as soon as possible when it drops below a certain price. Your stock might still take a hit depending on the decreasing gradient of the stock being sold as investors jump ship, but that’s more preferable to taking a completely devastating loss.
Once again, make sure that the money you’re investing is surplus funds – don’t use your retirement fund, your children’s college money, or any other money that’s going to undermine your current way of life. Remember, some penny stocks carry higher risk then others and you should always be prepared to loose your entire investment.
NOTICE: This article was based on research of stock market information and other sources of information, found both online and in print media. Neither StockTips.com nor any of its owners, contributors, officers, directors, consultants, or employees take responsibility for the accuracy of the information contained in this article or the accuracy of the information on which this article was based. StockTips.com was not compensated by any of the companies mentioned in this article for the preparation of this material, nor were the materials approved by the companies which were mentioned.