How to Recover From a Failing Penny Stock - dummies

How to Recover From a Failing Penny Stock

By Peter Leeds

Recovering from a bust is possible. Even after you become an excellent penny stock investor and you continually uncover the best low-priced shares in the greatest up-and-coming companies, you will encounter an investment from time to time that performs very poorly for reasons that you can’t readily identify. Despite fundamental strength, rock-solid financial position, rampant sales growth, and an incredible management team, the shares don’t seem to gain any traction.

Flagging performance may be due to an overall market slide. However, sometimes even when the markets are performing well and no amount of research reveals any cause for concern, the stock remains lackluster. In such cases, investors are treating the stock unfairly; in other words, by failing to recognize the underlying value in the shares, they’re trading them for much lower prices than the company’s situation merits.

Besides the loss in the value of your investment, the real tragedy is that your investment may be declining despite having so much potential for growth.

Fortunately, you can still come out on top if you observe a few simple techniques:

  • Observe loss limits. Loss limits are a way to automatically sell your shares when they slip a certain percentage. You can use this tactic to limit your downside; it will insulate you against even the highest quality companies going south for no reason.

  • Never fall in love. Often, people get too attached to their shares, whether because they invested too much money into the stock or they simply have too much belief in what the company could do. In any event, investors who fall in love with a particular stock are more likely to hold their shares as the prices nose-dive instead of selling at the first sign of trouble.

  • Recognize a buying opportunity. If the penny stock is as good as you think, but the share price keeps sliding lower, it may represent an excellent buying opportunity. However, make sure that you’re not overlooking some material issue. If the company is getting stronger, and the shares are going lower, this may be a tremendous value from an investment standpoint. Figure out where the price will bottom and reverse.

My hope is that you never encounter shares of an excellent penny stock that fall for no reason. However, even when your due diligence is stellar, it does happen from time to time, and the more active you are trading penny stocks, the greater likelihood of just such an event.

If you accept the possibility and prepare for it accordingly, you can turn just such an occurrence into an opportunity.