Investing In Penny Stocks
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.
