Zalacsany

If a broker calls you with a hot stock, you should hang up. No matter how exciting the deal sounds, no matter how glib the presentation, never invest solely on the sales pitch of a broker—particularly one you hardly know and have never dealt with.

Here are some of the pointers from an article I have read that you could follow – a penny-stock checklist:

1. Always scrutinize the annual report and any other literature you can obtain about a small firm, including brokerage company reports. Brokers are sometimes prone to, shall we say, exaggeration. Written information is more accountable to regulation and may put the investment in a more realistic light. Pay close attention to the footnotes and fine print.

2. Stay away from companies with excessive debt or companies that are in bankruptcy.

3. Stay away from companies whose annual reports reveal too much of their assets under goodwill or that have negative working capital, poor earnings or significant legal problems.

4. Stay away from penny stocks with high market capitalization. (The market capitalization is the market value of a public company, determined by multiplying the number of issued shares by the trading price.)

5. Look for liquidity. A stock should trade at least 50,000 shares a week.

6. Diversify your penny-stock portfolio. You should be invested in at least six companies.

7. Ask brokers if they personally have a position in the stock they’re recommending. (It’s best if they don’t.) If so, ask if they h-ave sold or are planning to sell any, or whether they purchased the stock at a price below the current offer.

8. Always take possession of penny-stock certificates.

9. In mining stocks, stick with firms that are in production or near it. Do not buy mining stocks in the earlier phases of growth— exploration, developmental exploration or development. It’s difficult even for professional geologists and mining-stock experts to assess the future prospects of these.

10. Don’t bet more than you can afford to lose. Penny stocks are speculative. Even if you’ve done your homework, you’ll still probably lose your money. Take a flyer on them only if that doesn’t bother you.