Penny stock investors have to live in the here and now. Their investing horizons are extremely short ranging from a few months to a few hours. While I can understand why that question surfaces time and again. The answer is always the same – ‘It depends’. This is not something that folks like to hear especially those who are looking for a quick buck. My intention isn’t to annoy them though it might seem that way.
The answer is intended to fish for more information. I usually follow this up with additional questions like the following:
Which stocks are trading in right now and how did you hear about them?
This gives me a feel for their experience and how they go about their research. What I don’t usually like to hear is ‘Stock XYZ and I heard about this hot pick in forum ABC’. While forums can be a source of good information in my experience they usually are frequented by people who are looking to vent or just be heard.
Was your last trade successful?
Once again, I don’t do this to rub salt in their wounds but rather figure out whether they are coming off a high or if they are on a losing streak. If they made a loss, I usually share one of my stories where I lost a bundle. This is to prevent them from becoming defensive and to let them know that we’ve all been there. If they were successful, I congratulate them and ask them if they have looked at the company’s competitors? I’ve found that my biggest successes have come from a few industries or niches that I started focusing on. Being able to leverage your industry experience each time you make a trade helps you make better informed decisions. Not always of course. There are no guarantees but industry knowledge is helpful.
The above two questions usually result in a short conversation where we figure out whether I would be able to help the other person or not. I have seen enough traders jump the gun and make bad trades simply because they followed some recommendations without doing their due diligence. Usually they bought the recommended penny stock a little too late or held onto it too long. There is definitely some trial and error involved in making penny stock investments but once you learn the basics and get some trades under your belt, you will be minimizing the errors.