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Blog : The Early Bird Gets the Worm
by John Whitefoot on March 16th, 2007
Spring and its unpredictable weather may be just around the corner, but it’s already in full swing on Wall Street. During the last week of February, the Dow Jones Industrial average tumbled 4.2% - the worst weekly percentage drop for the Dow since March 2003.
This week has been just as wooly. European and Asian stocks slipped Wednesday after Wall Street chalked its second-biggest point decline in four years.
The tumble came just as international markets were recovering from the sharp declines earlier this month amid concerns about overvalued stocks and a slowdown in the U.S. economy.
Those fears resurfaced as worries about sub-prime lending and the economy pushed the Dow Jones Industrials down nearly 2% Tuesday.
What’s the big deal with sub-prime lending? First off, a sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. How does that impact penny stock investors like you and me?
There has been an alarming increase in mortgage defaults to sub-prime customers – home buyers with less than top credit. Penny stock investors are worried that problems in this sector will hurt not only sub-prime lends but also the broader housing market and economy.
At the same time, penny stock investors are also concerned about waning economic growth, especially after Tuesday’s news that February retail sales were weak for the second month in a row.
Does this recent data and current volatility point to impending doom and gloom? Most analysts don’t think so.
"In perspective, you could still say that this is a correction after the strong rally that was experienced for the previous several months around the world," noted one Asian economic forecaster.
Balancing out the recent retail sales data and mortgage news is the strong U.S. jobs data released last Friday. The same analyst added, "The world economy seems to be remaining on an upward trajectory."
So, is the market going to head up or down? Who knows…and really, as a penny stock investor…you could add, who cares. Whether the markets are up or down, you can still use the same strategy for picking excellent, undervalued penny stocks.
Whether you’re looking at penny stocks or mid-to-large cap stocks…focus on quality. There’s never a "wrong" time to buy good stocks – but there’s also never a better time than when the markets are wobbly.
Look for buying opportunities. We all know that it’s a good idea to "buy low and sell high," but most investors do just the opposite; chasing after the flavor of the month, day or hour.
By chasing a hot stock you could end up purchasing a stock whose price might be peaking. And really, it’s no fun having to sell when a stock falls just so you can cut your losses.
Finally, the best buying opportunities often occur when the market is down. Market slumps tend to drag down all stocks; even those with good prospects for growth.
If a penny stock had strong fundamentals before the market-wide slump, it will still have them after. Except now, it’s an even better bargain.
Whether you’re a seasoned or novice investor, no-one likes to see the market shed so much in such a short time frame. Still, if you concentrate on quality penny stocks with strong fundamentals and great long-term growth potential you’ll be able to navigate the markets ever percolating seas.