My tip would be DON'T DO IT!
For my two cents worth (by the way, I am a very conservative, and lazy, investor)--hope it is not too long or wordy:
Standard Warning: As always, your mileage may vary and you should educate yourself fully before taking my, or any person's advice prior to making investments, and only make risky investments with money you can afford to lose. My advise here also talks about other options in investing that you should consider as part of an overall strategy:
1. Penny Stocks are usually just scams--Sucker buyers in, then the brokers (or even organized crime!) dump and run.
2. Day Trading was hot during up to about 2000 or so--studies showed that you had almost no chance of coming out ahead. The stories from investors were the same you hear from gamblers... True Story: My Dad's workmate came in Monday from a weekend at Lake Tahoe casinos talking about how he had a hot streak ($20,000 in the 1960's), lighting cigars with $100 bills, etc. After breakfast, he hit my father up to pay for the meal.... He had lost it all and the only way they (with girl friend) made it back home was a full tank and bridge toll in the ashtray... But he came back a "winner" as far as he was concerned. People only remember the wins, and not the losses, commissions and tax bites.
3. If you don't watch it every minute--you can loose big. Friend had a computer crash and it took him a few days to get it fixed--was in the hole tens of thousands of dollars (some of it money he had invested for friends). He still is trading in stocks, but looks for a bit longer terms in bigger companies.
4. Don't get greedy. I have seen lots of folks in Silicon Valley make lots of paper profits in stock options. Around the water cooler I would hear folks talking about how our stock (big company) was "going" to double in x months, and "is scheduled" for a split in y months. This is after the stock had already multiplied 8x in two years... Then it crashed to 1% of it former value (at the low).
5. There are scams out there that make brokers look fool proof to an investor. Here is one. Broker calls 100 people with soft sell "Don't invest a dime with me. Just listen to my recommendations for awhile." He tells 50 people stock A will go up, tells the other 1/2 stock A will tank. Wait a few weeks or month and call the people were your prediction was correct. Repeat with stock B and tell 25 it will rise, and 25 will fall. Call back the 25 were you predicted right and now ask for cash to invest on stock C (or invest with broker). Take commissions/cash and scoot.
6. Inside information is not useful when investing in stocks. Other than the big news, like Martha Stewart and M-Clone (sp?), I find that there is very little connection between how a stock does and day to day operations of a company. I worked at companies where I was surprised the product even worked, yet great a great sales force and new product, coupled with positive external views of the company helped the stock rise. Other places, great product, poor market buzz, stock did poorly.
7. Price of the stock is usually already at top of valuation curve. It may continue to rise as company/industry/market does better--but any bad news, and the stock will immediately fall.
8. If you want to day trade, I have seen some predictable price cycles. For my industry, it was common that an employee could invest in the company stock savings plan through an 85% of market value. For whatever reasons, as employees, we would see that the date the price was set seemed to be a short term high. When the stock was purchased and available to employees, the stock was usually at a short term low. Had a co-worker who saw the trend and made a huge chunk of change shorting the company stock in that time frame. Well, he got the profit, the NASDAQ market maker for the stock got pissed, the company fired him, the company sued him (and wrote a company policy that employees cannot short stocks), and he successfully defended himself (judge said no insider information was used).
9. Everybody looks like a super investor in an "up market." In a down market, there are few. And hardly any fund managers that beat the S&P 500 average. If you want, just invest in a Vanguard Index Fund (no commissions, low expense ratios) or equivalent and you beat, in the long term, most money managers.
10. My formula for risk... Look at the current Prime Lending Rate (or equivalent long term mortgage rates, etc.) and compare that to your expected rate of return. If that rate is ~6% and your return (or promised return) is 18%, I would assume that there is a pretty much a 66% chance of a zero percent return, and possible loss of my initial investment (Invest in 3 similar stocks, one will return 18% and two will return zero for an average of 6%). This is not an investing rule/formula that seen anywhere, but it allowed me to visualize the risk associated with high returns. There is a reason why people expect high returns--it is RISK.
11. Don't invest in a Bond Fund, invest in the Bonds themselves. I am not a sophisticated investor (but I will explain this as I understand it)--Investing in bond funds gives me the rate of return as I would get with the bond, but the fluctuation of the market (rates rise, bond price falls) and I may not know how much of my principle I will get back. If I purchase a 5 year bond, I will also get the expected interest, plus I will know how much principle I will get back at the end of 5 years.
12. Watch for commissions, taxes and hidden fees. It a low inflation/rate of return environment like we have today, a few percent rate of return can be destroyed by a 2% management fee. Short term profit taxes can be upwards of 50% of your profit. You took the risk, the government got half of the reward.
In the end, I did OK because I used my stock and options to pay off my house (and buy a car) when I had some good profits (and sold other stocks into a rising market)--Could I have made more if I waited until the "PEAK" or made other, more risky decisions,--Yes. But when the industry crashed and jobs were getting scarce--I did not have to worry about big house and car payments killing me. Nobody can predict the peak--it is usually only obvious after the fall.
I gave this same advice (I kept saying "remember the
Tulip Mania of 1635) to my coworkers and I don't think anyone else followed it. Even now, when I have lunch with them--they still bring up the conversations we had about when I told them not to be greedy.
There are so many people with inside information, random news events, and computers programmed to make trades when instabilities are noticed--that a lone investor is at long odds of trying to make a quick buck.
Are there people that make money this way--some. But I would take their stories of vast/easy profits with a grain of salt.
One person that I listened to on radio in the 1990's into 2000's (he is still on--but is preempted often by sports now) was
Bob Brinker. He warns that you cannot just dump money into the market and wait for profits, but you must manage, and time, your actions against long term trends.
You will hear many people say you can't time the market, but I agree with Mr. Brinker and I would definitely watch for the long trends. And, do not bet everything on one stock/cycle/tip.
Bob Brinker kept speaking of market cycles and helped me to cash out when my comfort level switched from positive to negative (in this case, before the crash of 2000).
He does have a newsletter with alerts... I am thinking of subscribing (I have a "young" CFO friend who does subscribe now--I have just been too cheap to spend the money yet). Brinker seemed to have more horse sense vs the "flash" that I saw with Motley Fools and others.
In the end, I am the first to admit that I have been lucky to have a job and invest in a hot sector in the 80's and 90's. I have seen folks in the same boat as me, both do well, and also do crash and burns (sometimes the same person). So--my recommendations are; don't get greedy, watch the long term trends, stay away from day trading/penny stocks, don't do margin accounts, and look at your stocks often. If you look at a stock you own, and you would not buy it today--dump it today--don't fall in love or hope for one more bounce to get out with less loss or more profit. And aim for long term capital gains (more than 1 year--or dividends) as the federal tax rates are much lower--but don't only buy or sell based on tax concerns.
Good Luck!
-Bill
PS: If you are really interested in seeing a contrary view to how a huge company like Microsoft games the market, its employees, and the US Government, take a look at
MICROSOFT FINANCIAL PYRAMID circa 1999. This guy, Bill Parish (who I know nothing about and never used his investing services), back in the late 1990's told how tech stocks were being inflated. I found his information very interesting (and scary). I am not a financial person--but much of what he had written was fascinating and made sense to me (working in the industry). And helped me from getting swept up in the "tulip craze" of the 1990's.