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Penny Stocks

Penny StocksSince 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.

{ 1 comment… add one }
  • Anna October 19, 2011, 6:39 am

    Right now I think invest in any kind of stocks in general is very risky as the world is entering the second wave of the crisis and if you are not sure of your abilities than how can you guarantee that you will not lose all the money.

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