Since my internet-bubble day-trading venture of the late 90s, I haven’t spent much time in the stock market. Sure, I have the typical mutual fund retirement accounts. But I’m not a gambler — by nature or value system. Trading without doing serious company research isn’t too far out of the realm of gambling.
Of course, even after reading a few prospectuses (I really wanted the proper plural to be prospecti — no such luck), you might not know much more about a company. And even if you do, that knowledge can have little relation to fluctuations in stock prices.
One area of trading I’ve never ventured into is that of buying/selling/optioning penny stocks. A “penny stock” is a common share of a publicly traded company that sells for less than a dollar.
My biggest concern with such stocks, is that it seems the price is much more easily manipulated. If a $10 stock jumps 3¢, it’s a gain of %0.3. If a 25¢ stock jumps 3¢, it is a 12% increase. And if a 10¢ stock rises 3¢, it’s a 30% increase.
Penny stocks can also be susceptible to the microcap stock fraud pump and dump. Schemers use email spam and other inexpensive methods to falsely promote a stock, thus raising it’s demand and price.
While I have serious concerns about trading in penny stocks — just as I do any volatile investing strategy — such investing can be done with prudence if well researched. And you’ll need credible advice on penny stock trading from a knowledgable source that you trust. Get references and a track record that can be verified.
Take your investing seriously and find the best way for you to build your nest egg.