Topic: Penny Stocks

Knowing when to sell your penny stock investments is a key part of making money on these risky investments

tsx penny stocks

Learn when to sell your penny stock investments to avoid holding them too long. Find out more now.

Do you know when to sell your penny stock investments? In penny stocks or games of chance, the odds are against you. So, time works against you. The longer or more often you play, the more likely you are to lose.

If you lose money in speculative pennies or other low-quality stocks, you may think your main mistake was bad timing. That’s a misconception. All penny stocks rely on luck to become wildly profitable. If you play long enough, the “house odds” eventually triumph over any run of luck.

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Know when to sell your penny stock investments and use our “sell-half” rule with penny stocks to boost your profits over time

Knowing when to sell a stock is one of the most-important factors in successful investing—it’s almost as important as knowing when not to sell. That’s why we advise investors to follow a key rule when it comes to rising penny stocks.

Selling half of your hot stocks that surge helps you guard your profits. But apply this rule only to more aggressive stocks, and not to the well-established stocks that may surprise you by going a lot higher in the long run.

Whether your approach to investing is conservative or aggressive, the quality of your investments matters much more than your skill at selling.

However, you should be quicker to sell aggressive stocks than conservative ones. With stocks we rate as “Speculative” or “Start-up,” it pays to apply the sell-half rule.

Learn when to sell your penny stock investments by knowing that the most active low-quality penny stocks may also be ones to avoid from the start

Penny stock bubbles have helped investors profit, however, when the bubble bursts, prices of low-quality stocks inevitably come crashing down.

After all, it’s much easier to launch a stock promotion than it is to create a successful, lasting business. 

Buy penny stocks as a small portion of your portfolio, if that 

When you buy penny stocks you could have a big payday if you make the right choice. But the odds against success are high. Penny stocks are almost always involved in riskier ventures such as finding mineral deposits that can be mined at a profit, commercializing unproven technologies or launching new software.

In general, penny stocks have lower trading volumes, or liquidity. That means it may be more difficult to sell a stock when you want to. Penny stocks also suffer from large price fluctuations, so any bit of news will cause a penny stock’s price to rise or fall.

Follow these tips to cut the risk of investing in penny stocks 

  • Avoid penny stocks that trade at unsustainably high prices because of broker hype or investor mania about the underlying commodity.
  • Look for earnings or cash flow. A perpetual money loser will eventually go broke, no matter how impressive its technology. But if it makes even a little money, it can stay in business and perhaps reap the bonanza of a new product.
  • Watch out for acquisitions. Acquisitions can bring “time-bomb” risk. Companies sometimes grow quickly by buying other companies. But it may also be the case that those selling the companies may simply want to bail out of a losing situation.
  • Spread your penny stocks out across different market segments. When making a list of penny stocks, we recommend investing in a range of markets. This includes software, biotech, technology, mineral exploration and so on.

Recognize when to sell your penny stock investments by considering the penny stock promoters

You should be aware that many penny stocks are little more than very well executed marketing campaigns. Penny stock promoters will do anything in their power to get their penny stock noticed. These extensive marketing campaigns include emails, TV interviews, podcasts, newsletters and paid sponsorships.

There are also some so-called news sites that will sell sponsorships to penny stock promoters. These are great opportunities for penny stock promoters but bad for investors looking for an unbiased opinion on a stock.

Penny stock promoters love to make deals—however minor or indirect—with major, well-known firms. These deals are aimed at gaining the trust of investors. The penny stock hopes that the link with a major brand will give it instant credibility, even if it far from guarantees any sales or profits.

Not all penny stocks and their promoters are out to cheat investors. But it’s important to approach any penny stock with a healthy dose of skepticism.

Use our three-part Successful Investor approach to make better investments—including deciding if you should invest in penny stocks

  1. Invest mainly in well-established, dividend-paying companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
  3. Downplay or avoid stocks in the broker/media limelight.

How long have you held the same penny stocks in your portfolio?

Do you think it’s worth the risk to invest in penny stocks?

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