How The Pros Pick The Best Penny Stocks

| August 25, 2015

investingThe best penny stocks have two things in common, and both of them deal with risk.

Most investors think that the higher the risk, the higher the reward.  That’s an easy way to think about penny stocks to buy, but it’s not true.

That’s for dreamers.  In the real world of penny stocks, the higher the risk, the higher the chances of losing money.

You’ll get the reward when you look risk in the eye.  Profits come when you find a stock that gives you the opportunity for a great reward at the same time it takes away some of your risk.

Want an example?

Here are two kinds of risks you see all the time when it comes to investing in penny stocks.

The Best Penny Stocks Are Never As Scary As They Seem

Here’s what I mean.

The best penny stocks are often perceived as being riskier than they actually are.  Investors have inflated their perception of risk. They overreact.  This happens all the time and when risk is unreasonable, when it’s higher than it should be, you know what happens?

The stock price winds up artificially low.  And it means you can get a great deal.

Risk is everywhere.  When you’re buying penny stocks, it’s a big consideration.

You know the weather forecasts that predict a huge storm, and then the storm doesn’t hit with the strength the forecaster expected?   It can be the same thing when investors predict risk.

Remember, risk doesn’t live in the present as much as it lives in the future.  So let’s say the penny stock you’re looking at is a mining company, and it just ran into delays at one of its operations because of a construction problem.

Word gets out (as it should) and the stock takes a hit.

Well, it happens that the mining company has six other sites.  The construction delay isn’t that big of a deal.  Risk is spread around.  Chances are this “bad news” has hit the price of your penny stock harder than it should.

What you’ve got here is a penny stock that’s probably not as scary as it seems.  Everybody’s moaning about the problems at mine #1, and overlooking what’s happening at mines #2-6.

Don’t rush off and follow the crowd.  Look into things for yourself.  Sure, we want to be careful, and we want to acknowledge risk.  But we don’t want to blow it out of proportion and miss out on the best penny stocks to buy now.

This is one of the reasons why you can make good money investing in penny stocks.

And with some common sense, better money than with other stocks.

Here’s proof you make more money trading penny stocks.

The Best Penny Stocks Give You “Melting Risk”

Risk isn’t a constant.

It’s not like a temperature that stays the same.  It edges up and down.

In the overall market, this temperature is taken when volatility is measured.

When you’re investing in penny stocks, you want to look for risk that is melting.

How do you do this?

Buy your penny stock after bad news hits.  This bad news could be a soft earnings report or any kind of a setback. Wait for things to calm down, but don’t wait too long.  Risk starts to melt away when the impact of the bad news loses some of its punch.

The stock price that’s been held down by a risk that’s not so much of a risk anymore is a stock price that’s ready to soar.

Let me show you an example.

Lionbridge Technologies $LIOX is in the tech testing and content delivery business.  It’s been around since 1999 and over the past year it’s traded between $4.02 and $6.46.

It’s one of those stocks that gets knocked down and pulls itself back up.

Take a look at this chart, and you’ll see three times over the past year when it’s been able to “melt risk” and rebound…

Best Penny Stocks Lionbridge Technologies $LIOX Chart

So there you go.  Two ways to strip out risk when you’re looking at the best penny stocks to buy now.

Any thoughts?  Got a question about a stock or an investment idea?

Shoot us an email or leave us a comment on the website.

Good investing…

Brian Kent

Note:  If you’re interested in learning more about Brian Kent’s Penny Stock All-Stars premium service… and learning about the stocks we’re trading for profit… you can get the inside scoop on penny stocks here.

Tags: , , , ,

Category: Penny Stocks to Buy

About the Author ()

Brian Kent is the Editor for He also pens Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market's next Blue Chips.