Author and penny stock analyst Peter Leeds cautions investors to be careful with fundamentally weak penny stocks that are touting great stories or business ideas.
New York, NY -- (SBWIRE) -- 06/14/2012 -- Thomas Edison said about inventions, that an idea is only 5% of what's required, while hard work makes up the other 95%.
There are some who believe that this line of thought directly applies to the stock market as well. Peter Leeds, author, public speaker, and penny stock analyst agrees.
"There are a lot of low caliber penny stocks which have a great idea. Many newer investors will buy penny stocks simply because the company has a great 'idea' or business concept, but that does not at all make for a good investment."
"For example, a penny stock could be working on a cure for cancer, or a better type of solar cell, or a pill that makes you taller... all of which could be great if they actually accomplished their goal. However, these 'idea -based' penny stocks are almost always out of cash, under a mountain of debt, and trading at dramatically overvalued share prices."
Leeds states that great idea penny stocks are what often leads to investors buying shares without careful consideration, and in almost all cases leads to losses in penny stock trading.
"I'm not suggesting anyone stay away from penny stocks that have a good story," mentions Leeds. "I am suggesting that penny stocks with good stories are generally overpriced, and very often financially ugly. All investors should do major due diligence on any penny stocks they are interested in. Buy only penny stocks of the highest quality, which means they have earnings, no debt, expanding market share, and all the other things we look for when we do Leeds Analysis."
Leeds suggests that investors protect themselves in penny stocks by following his three simple rules:
1. Don't buy Pink Sheets or over-the-counter penny stocks
2. Never follow penny stock picks that come from free penny stock newsletters or web sites
3. Put all penny stocks through a full Leeds Analysis review to uncover the best penny stocks
To learn more about penny stocks, or Peter Leeds, you can visit him online at his world famous penny stock newsletter.