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Investing in penny stocks can be a rewarding, albeit risky, venture. “Penny stocks” is a term used to describe stocks trading for under a dollar per share. Penny stocks are traded in “over-the-counter” (OTC) exchanges. They’re not traded on major exchanges, such as the NASDAQ or New York Stock Exchange. With these exchanges, stock prices and volume information is continuously reported and updated. When investing in penny stocks, such information is not readily available.
In fact, investing in penny stocks yield almost no information to the average investor. Usually, only brokerage houses have access to daily lists called “pink sheets.” Sometimes, newspapers publish prices for investing in penny stocks, but the number of stocks listed is only a fraction of the many available. Not only that, these published prices may not reflect the actual price that someone investing in penny stocks would pay.
When investing in penny stocks, watch out for potential scams and schemes that might cloud your judgment.
For example, some brokerage firms tout the stock’s past performance as a selling point. However, as a typical prospectus warns, past performance is not necessarily an indicator of future returns. Even if the past performance is accurately and honestly reported, the way the stock reached the numbers being reported might have been through dishonest methods. One of these methods involve a person or group buying up a large order of penny stocks, hype it up to make it attractive to investors, then sell it to the investors at an inflated price. The investors who fall for this scheme then own stock that is almost worthless.
Investing in penny stocks may subject you to some high-pressure sales tactics. You might be the subject of telemarketing calls. At first, the telemarketer or broker will try to befriend you so that you’ll let your guard down. They’ll call back in a week or two, informing you about a potentially hot stock that’s about to blast off. Their next call after that is to close the deal, telling you that any delay in investing will cost you in profits. They will try to convince you that they have some kind of insider information that isn’t yet available publicly. They might tell you that today’s price is below-market and for a limited time. They might advise you that there are limited amounts of stock available at the low price. Do not fall for any of these tactics.
Like other types of stock, penny stocks can pay off when you buy low and sell high. Unfortunately, investing in penny stocks can subject you to fraudulent and dishonest practices. When you know what to look for and keep a level head, you can make a better decision and hopefully find a winner that can give you a nice return on your investment.
The term “high-risk investment” sounds scary, doesn’t it? This phrase alone is enough to put many investors off. After all, no one wants to take a risk. The trouble with buying any kind of stock (high-risk of not) is that it’s always a gamble. But how do you decide when a stock is just too high-risk, for you?
There is a lot of information floating around on the Internet about penny stocks. Almost everyone with an e-mail address has gotten spam at some time or another, touting a penny stock as the next great investment. Sadly, much of this information is geared toward scamming you in some form or fashion, and it’s likely that you will lose all of the money that you put into the stocks advertised in this fashion. But that doesn’t mean that all penny stocks are bad deals, that you will lose money every time, or that every single penny stock is a scam. In fact, far from it. Some penny stocks might be very good investments, indeed.
Tip: Establish a list of criteria to look for in a company before you buy any shares. Your gut instincts are able to help you out a whole lot.
Penny stocks are affordably priced shares in companies or businesses that are considered “small,” as opposed to big corporations. There are not many shareholders involved in penny stocks, making them less “liquid” than many other types of stock. The goal of investing in penny stocks it to part with very little money initially to enjoy a big return later on. Does it work this way? It does, sometimes, just not all the time. For those who know what they’re doing when they’re investing in penny stocks, they can be a great investment tool. Mastering the art of trading in penny stocks can be tricky, however.
For one thing, penny stocks don’t trade on the major stock exchanges. Rather, penny stocks are known as “over the counter” investments, listed on Pink Sheets and the OTCBB. This makes penny stocks rather unique, and somewhat harder to find for many investors. Penny stocks also don’t trade very regularly, so sometimes investors have very little time to act. Because trading does not occur often with penny stocks, there is always the fear of being unable to sell one’s shares of penny stocks and winding up with a bad investment. This is all part of the risk of trading in penny stocks, and many investors think this makes the game all the more challenging. When you invest in penny stocks, you should receive monthly updates that let you know how your stock is doing.
So, are penny stocks too risky? The only person who can decide that is you. Some investors find that penny stocks aren’t too risky, but others do. It’s all a question of how much gambling with your money you want to do, how much you know about penny stocks, and how lucky you feel. If you think investing your money in penny stocks is a good idea, then it probably is. Everyone has a different opinion on penny stocks. Learn more about them, and form your own.