Kenny Tran to Learn & to Share

Income stocks (dividend stocks) are those of corporations that give money back to shareholders in the form of dividends. Some investors are attracted to income stocks because they live off the income in the form of dividends and interest on the stocks they own. In addition, stocks that pay a regular dividend are less volatile. They may not rise or fall as quickly as other stocks, which is fine with the conservative investors who tend to buy income stocks. Another advantage of stocks that pay dividends is that the dividends reduce the loss if the stock price goes down.

Value Stocks

Value stocks are stocks of profitable companies that are selling at a reasonableprice compared with their true worth, or value. The trick is determining what a company is really worth - its intrinsic value. Value stocks are often those of old-fashioned companies, such as insurance companies and banks, that are likely to increase in price in the future, even if not as quickly as other stocks. It takes a lot of research to find a company whose price is a bargain compared to its value. Investors who are attracted to value stocks have a number of fundamental tools (e.g., P/E ratios) that they use to find these bargain stocks. The world greatest investor, Warran Buffet, has relied on value investing to grow his money by 24.7% per year consistently for over 50 years, doubling his fortune every 3.4 years.

Growth stocks are the stocks of companies that consistently earn a lot of money (usually 15% or more per year) and are expected to grow faster than the competition. They are often in high-tech industries. The price of growth stocks can be very high even if the company’s earnings aren’t spectacular. This is because growth investors believe that the corporation will earn money in the future and are willing to take the risk. Because growth stocks are so volatile, they can make sudden price moves in either direction. This is ideal for short-term traders but unnerving for many investors. Google stock is one of the examples of growth stocks.

Penny Stocks

Just as their name suggests, penny stocks are stocks that usually sell for less than a dollar per share. Because the stocks of these small corporations usually don’t meet the minimum requirements for listing on a major stock exchange, they trade in the over-the-counter market (OTC) on the Nasdaq. The advantage of trading penny stocks is that the share price is so low that almost everyone can afford to buy shares. For example, with only $100 you can buy 500 shares of a $0.20 penny stock. If the stock ever makes it to half a dollar, you made a 250% profit. That is the beauty of penny stocks. On the other hand, you could put your order in at $0.50 a share, and a couple of days later the stock could fall to $0.20. It happens all the time. After all, penny stocks are so cheap for a reason. That reason could be poor management, no earnings, or too much debt, but whatever it is, there usually aren’t enough buyers to make the stock go higher. Even with their low price, the trading volume on penny stocks is exceptionally low.

Because of their low volume, penny stocks are also the favorite investment of unethical people who work in boiler rooms.  It is reported that thousands of people fall for this scam every single day. The boiler room brokers are skilled at making you feel that you are going to miss out on the deal of a lifetime if you don’t buy in the next 10 minutes. In reality, it’s unlikely that the penny stock will ever make it. Therefore, you must do your homework very carefully before you purchase your first penny stock.

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