Table of Contents
Common Investment Types
In this chapter, I’m going to go over some of the most common investment types people use today. There are a lot of penny stocks that deal in a lot of different sectors, so you really have to understand the basics of Wall Street before you can understand penny stocks.
Got your pencils and pens out? Get ready to take some notes.
Stocks
Let’s start with an easy one—stocks. They’re nothing more than pieces of paper entitling stockholders to a percentage of ownership in companies.
You don’t own the companies. You’re not investing in the companies themselves. You have a little piece of paper and the value of your piece of paper can go up or down. That’s what you’ve got—nothing more, nothing less.
Commodities
Commodities are physical substances like oil, gold, grain, and orange juice (remember Trading Places?). The prices of commodities can influence penny stocks, but they aren’t usually related. They’re definitely a different animal altogether.
Derivatives
Derivatives include futures and options, and derive their value from other investments, like stocks. Although they sometimes influence penny stocks, they aren’t,again, directly related.
REAL ESTATE
Investing in physical properties is another path people take to growth their wealth.
Sometimes, real estate investing can influence penny stocks, such as when a penny stock
company owns a lot of real estate, but this type of investing is another one that rarely
influences penny stocks.And I have to tell you, although a lot of people like it, I’m not a big fan of real estate investing.
Want to know why? There are so many different variables to account for when
you trade real estate! If you try to flip houses, you’ve got to time the markets perfectly,
hope that your contractors know what they’re doing and pray that you don’t find any big,
unexpected, expensive repairs in the house you bought.
But even if you buy a property and hold it as a rental in the long-term, you’ve got to deal with tenants who want their light bulbs replaced at midnight. You’ve got property taxes and maintenance costs—all of which eat into your profits. There’s just so much risk of losing money!
Penny stock trading is so much more simple and elegant. Make a trade, make money, and get out, lose sometimes, but keep your losses smaller than your gains and you get richer—that’s all there is to it.
