Earlier this year we asked how can you make money trading penny stocks?
If you are going to trade stocks, trade what you know. That means if you have specific knowledge regarding a specific stock sector stick with that. If you are really good at technical analysis algorithms use those. If you want to make a killing in the market pick a cheap stock with promise and sell when it goes up a hundred fold. All of this sounds good but specifically how can you make money trading penny stocks? There are three viable approaches. Knowing what no one else knows about a stock, exceptional technical trading skills and buying a large number of cheap stocks are three ways to go.
Our article is pertinent when you read an article in Bloomberg saying that dumpster diving for stocks is a viable strategy.
While there were bargains galore in early 2009, late 2011 and even early 2016, if you want to find value in these markets, you have to go dumpster diving. What follows are some of the worst-performing asset classes, funds and stocks over the past three years. This list is like the Island of Misfit Toys in some respects, but you have to expect that anything going down big has to come with some baggage.
Their suggestions of where to look in the Stock market dumpster for bargains are these.
- Retail
- Grocery Stores
- Movie Theaters
- Restaurants
- Energy
- Commodities
The fact of the matter is that all of these sectors are hurting and all are hurting for good reasons. We apply our thoughts on penny thoughts to the issue of Dumpster Diving. If you are going to trade any of these in search of profits pick one that you have unique knowledge about. Or pick one that trades at decent volume and volatility and apply your technical analysis skills. The last choice is to simply pick about 40 of them and assume that the market has correctly priced them. In that case the ones that don’t tank will outperform the rest of the market.
Fundamentals versus Investor Expectations versus Blind Faith
The price of any stock is eventually determined by its fundamentals. Thus the search for intrinsic stock value as explained in Profitable Investing Tips. Companies that make money and have prospects of continuing to make money see their stock prices rise. When investors expect to see a sea change in the markets such as with the election of Donald Trump they jump in with both feet and often don’t think a lot about just which stock they are buying. They simply expect a rising to tide to raise all ships. Unfortunately, as with the Trump bandwagon, expectations do not always come true. In the case of Trump the chaos that is the White House does not help with the journeyman work of constructing and passing legislation. Anyone who is still in the market based on the belief that Trump and the Republicans will pull it together and pass Trump’s agenda is acting on blind faith and that does not work for stock picking and especially when you are in the dangerous business of dumpster diving for possible bargains.
