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A Definition of Penny Stocks
Before talking about alternative energy penny stocks, we should define the term "Penny Stock" in general. Amusingly, no exact economic definition exists for this term, and various traders and investors use it in different ways. Some say that a penny stock is a stock that trades below 1$ level (there also penny shares in the UK trading below 1£). Others use the term to describe stocks that have a value of 5$ and below. In all cases, penny stocks are concerned with small companies, sometimes trading off major markets.
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The Drawbacks of Penny Stocks
As we are talking about small companies, the most obvious threat for the penny stock holder is, of course, bankruptcy. And this can easily happen as small businesses rise and fall all of the time. Another important consideration related to penny stocks is low liquidity. This means that when you want to sell the stock, there might be no buyer. So, the listed price is very misleading. Certain company can close at $3.75 per share, but when you try to sell it the next day, you might easily encounter a lone buyer offering as low as $2.45$. Being stuck with a penny stock is something that every investor should be aware of. Remember, potential profit is not a real profit. Until you sell a stock and have the money in your pocket, you have earned nothing.
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General Penny Stock Recommendations
Overall, I would not recommend buying penny stocks, including alternative energy penny stocks. You hear about certain penny stocks that developed into large companies (Wall-Mart is one famous example), bringing investors millions of dollars in a time. This is true, penny stocks can turn you into a rich person. However, there are many more penny stocks that simply vanished, leaving the investors with a plain loss. This is not 10% loss, this is 100% loss that cannot be returned. Penny stock investing is a gamble; if you want to bet, there are much more exciting opportunities.
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If You Still Want To Buy
If you still want to have some penny stocks in your portfolio, go for those that trade in the major markets (NYSE, NASDAQ etc.). The general guideline for a portfolio is to invest no more than 30% in stocks. You can have about one tenth of this number (meaning about 3% of your portfolio) in “speculative" stocks such as alternative energy penny stocks. This is so your portfolio is appropriately diversified to protect you from the risk associated with investing in only a few stocks, bonds, and other securities.
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Examples of Alternative Energy Penny Stocks
There are several types of alternative energy penny stocks. Some are related to wind energy, some are solar energy, some are called natural gas penny stocks. All of those are considered renewable or alternative energy penny stocks. Here are some examples (by no means are these recommended for investing; you should do your own research to be sure you want to take the risks involved):
- Cereplast Inc
- American Lithium Minerals
- Tesla Motors
- Origin Oil
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References and Image Credits