What to Do with Your Penny Stocks in Good Times and Bad - dummies

What to Do with Your Penny Stocks in Good Times and Bad

By Peter Leeds

Every penny stock investor will experience good and bad times. Investors will find themselves faced with imperfect conditions or a downward turn in the market. That is the inherent risk of the stock market.

Penny stock investments in the good times

When the stock market is on the upswing, even poor quality penny stocks can rise along with it. This holds true in reverse, as the best penny stocks can sink when everything around them is also going lower. This makes trading penny stocks very forgiving when you go along with the currents in the stock market and very punitive if you go against it.

One of the most profitable times to invest is when stocks are moving higher in general and the markets are making upward progress. As the positive tide rolls in, most stocks should benefit simply because they’re on the improving market. They are in the right place at the right time, and their shareholders are as well.

Investors are encouraged by rising stock markets. The upward move affirms the beliefs of investors who are betting on higher prices and makes those who don’t get involved feel like they’re missing out on profits. The end result: buying, which creates more buying, which in turn creates even more buying.

Penny stock investments in the bad times

Every penny stock investor will face times when the markets are pushing against him. You may be holding a great, well-run, and up-and-coming penny stock, but the stock market is crashing all around you.

In cases like this, no matter how much you believe in that particular penny stock, or how great the company’s technology or solution is, the value of the shares may be sliding lower. In times like this, even great news or glowing press releases may do little to bump the shares at all.

When deciding how to proceed, ask yourself if the worst of the drop is already over. If you think so, selling in reaction to the downward slide could be a major mistake because the shares may pop back up to former values pretty quickly.

If you feel that there is a lot more downside, even from the current depressed prices, consider selling and buying back at even lower prices as the downward trend plays out. Even if you’ve already lost 10 percent, it may get a lot worse. You can either go down with the ship or step onto the lifeboat with the intention of getting back onboard later.

If you are looking to buy certain penny stocks, a down market may be a great time to do so because bargains will abound. And considering that a lot of the weakness is market specific and not necessarily company specific, this could be a good time to start picking up all the shares you’ve had your eye on.

When the entire stock market is facing weakness, many investors sell various holdings to raise money to cover other parts of their portfolio. For example, if a speculator is hurt by market weakness which results in him owing his broker $30,000 within a few days, he may sell all sorts of assets, penny stocks included.

This may affect or exacerbate the downside of certain penny stocks, even though the downward shift is unjustified in terms of the underlying quality of the penny stocks.