Finding False Gold in Penny Stock
As far as traders go, many do not see the penny stock as a solid way to do business. Many believe that dealing with penny stock is a risky business. And it really is. Some traders think that the next Microsoft and Walmart stock is buried in a penny stock, which is why they stick around trading unknown stocks over the market.
What is a penny stock? According to the Securities and Exchange Commission (SEC), any stock under $5 is a penny stock. Definitions can vary; some set the cut-off point at $3, while others consider only those stocks trading at less than $1 to be a penny stock. What makes a penny stock risky? Certain issues must be considered before you decide to buy a penny stock:
1. Lack of Information Available to the Public - the key to any successful investment strategy is acquiring information to make informed decisions. In dealing with penny stock, information is much more difficult to find. Much of the information available about a penny stock is typically not from a credible source.
2. No Minimum Standards - Stocks on the OTCBB and Pink Sheets like the penny stock do not have to fulfill minimum standard requirements to remain on the exchange. Sometimes, this is why the stock is on one of these exchanges. Once a company can no longer maintain its position on one of the major exchanges, the company moves one of these smaller exchanges. While the OTCBB does require companies to file timely documents with the SEC, the Pink Sheets has no such requirement. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies.
3. Lack of History - Many of the companies considered to be a penny stock are either newly formed or approaching bankruptcy. These companies will generally have a poor track record or none at all. As you can imagine, the lack of histories of companies only magnifies the difficulty in picking the right stock.
4. Liquidity - When a penny stock doesn't have much liquidity, two problems arise: first, there is the possibility that the stock you purchased cannot be sold. If there is a low level of liquidity, it may be hard to find a buyer for a particular penny stock, and you may be required to lower your price until it is considered attractive by another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices, which is done in many different ways - the easiest is to buy large amounts of stock, hype it up and then sell it after other investors find it attractive
Penny stocks have been a thorn in the side of the SEC for some time because of the lack of available information and poor liquidity make these groups of stocks an easy target for fraudsters. There are many different ways these people will try to part you from your money, but here are two of the most common:
1. Biased Recommendations - Some companies pay individuals to recommend the company stock in different media, i.e. newsletters, financial television and radio shows. You may receive spam e-mail trying to persuade you to purchase a particular penny stock. Look to see if the issuers of the recommendations are being paid for their services as this is a giveaway of a bad investment and make sure that any press releases aren't given falsely by people looking to influence the price of a penny stock.
2. Off-Shore Brokers- The SEC permits companies selling stock outside the U.S. to foreign investors to be exempt from registering stock. These companies will typically sell the penny stock at a discount to offshore brokers who, in turn, sell them back to U.S. investors for a substantial profit. By cold calling a list of potential investors (investors with enough money to buy a particular stock) and providing attractive information, these dishonest brokers will use high-pressure sales tactics to persuade investors to purchase penny stock.
Be wary when investing on a penny stock. Chances are you will lose more money by putting your trust in a penny stock.
For more information on penny stocks check out the penny stock resource center
Latest News
![]() The Age | Microsoft's Ballmer to CES: keep investing in tech despite ... Scientific American - Las Vegas , NEV. -- In his first ever CES keynote, Microsoft CEO Steve Ballmer yesterday acknowledged the tough economic times, but urged companies not to ... Microsoft: the year ahead Microsoft releases Windows Server 2008 R2 beta Windows 7 beta available worldwide on Friday |
![]() Wealth Bulletin | How to avoid a Madoff fund San Francisco Chronicle, USA - Feeder-funds (hedge funds or funds that do all their investing through another fund) and funds-of- funds sold investment services to individuals, ... Uma Thurman No Help to Arpad Busson in Madoff Fraud’s Nightmare The Financial Services Industry’s Free Lunch Kingate considers joining class action on Madoff |
Coalition pushes for expansion of angel-venture investment program WTN News, WI - “The problem with this program is that we can't get enough of it,” said Teresa Esser, director of Silicon Pastures, a Milwaukee-based angel investment group ... WisBusiness: Development groups collaborate on push for investment ... Businesses seek tax-credit boost |
![]() Dividend.com | Billionaire investor places next supermarket bet MarketWatch - Yucaipa's investment funds have been aggressive buyers of Whole Foods shares since Nov. 24, spending a net $98 million to amass the stake. ... Activist shareholder buys 7 percent stake in Whole Foods Billionaire investor Burkle bets on Whole Foods |
US investment in IT would create jobs, group says ITworld.com, MA - by Grant Gross A US$30 billion investment by the US government in broadband, health IT and smart energy grids would create or retain nearly a million jobs, ... |
Thomas, McNerney & Partners Promotes Three Members of Its ... PR Newswire (press release), NY - Thomas, McNerney & Partners is a health care venture capital firm with approximately $600 million under management, focused on investing in life science and ... |
Invesco Fund Loss Stirs Investor Fears Wall Street Journal - By DIYA GULLAPALLI 'Stable-value" investment funds have been one of the last havens in employee-retirement accounts. But one, advised by money manager ... |
New T. Rowe Price mutual fund eyes global investment Bizjournals.com, NC - T. Rowe Price Group Inc. is launching a new mutual fund seeking reward amid the risks of global fixed-income investing. The Strategic Income Fund will ... |
Global Investing Roundups Money Morning - ... to the underlying hidden order of the markets, this strategy can be used to predict the movement of any investment - to the penny - with 95% accuracy. ... Emerging-Market Funds Lose Record $48.3 Billion |
Judge bars investment scam suspect from raising cash Palm Beach Post, United States - Cherry invested with Theodule after seeing his brother-in-law cash a check from the self-proclaimed investment guru. "You can't focus on it because it'll ... |
Resources
-
No Money Down - Creative Real Estate Investing!
Learn how to control real estate Without credit checks and no money down! You can Buy With No Credit!
-
real estate foreclosures- home69
Proven real estate Investing course specializing in foreclosures and pre-forclosures.
-
Real Estate Investing
How To Start And Run Your Own outrageously Profitable Fixer-Upper Business In As Little As 45 Days, even If You Can
-
Foreclosures - Real Estate Investing - Short Sales.
Learn about foreclosures and real estate Investing techniques like short sales and subject to financing
-
Online Trading for Financial Freedom - stock daytrading strategy.
Stock index trading strategy for beginning and experienced traders alike.
-
Real Estate Investing - Foreclosures
How To Start And Run Your Own outrageously Profitable Fixer-Upper Business In As Little As 45 Days, even If You Can
-
Real Estate Investing Course for Profits in Investing
Real estate Investing course reveals proven real estate Investing strategies using Lease Options and Creative Financing where you can earn big money Investing in real estate with no down and no credit
-
Make money stock trading, day trading, Investing and trading options like the pros!
Turn $200 into $4,630 in 30 days by trading options online from your home PC. Step by step instructions for novices or investment pros. Make money stock trading, day trading, Investing and trading options like the pros!
-
Make real money Investing in real estate by Lou Vukas
Lou Vukas gives you the insider secrets to making real money in real estate regardless of your credit, finances or location at realestatefortunes.com.
-
Real Estate Investing
eBook on Real Estate Investing and Real Estate Marketing


