companies are not made in a day and companies with great futures do not simply
pop onto the marketplace. Most start out as penny stocks and they work their way
up through the ranks. However, many ignorant investors think that getting rich
quick by investing in penny stocks and all it takes is finding just those
stocks. What we want to point out in this article is that penny stocks are not
always the best path to financial success.
Let’s Look at What Exactly A penny/Microcap stock Is
We shall refer to
these types of stocks as microcaps and “penny stocks” for the sake of making
things simple. While penny stocks are classified as such not everyone agrees on
which stock is a microcap or not. In general if a stock market capitalization is
between $50 million and $300 million it is considered a microcap but this too is
a blurry issue. The SEC (Securities and Exchange Commission) classifies all
stocks under $5.00 as penny stocks as do we while others consider penny stocks
to be only those trading under $1.00. But to be sure, all stocks trading on the
Pink Sheets are considered penny stocks by us.
The important thing you
need to know is that penny stocks are far more dangerous than other stocks.
Penny Stocks are very much like junk bonds in many cases.
So What Is
the Problem With Penny Stocks?
What makes penny stocks risky? Let’s look at the most important concerns you
need to consider before investing in penny stocks:
Information Available to the Public Is Poor
Part of a good strategy when investing in stocks, microcap or otherwise is
to obtain as much tangible information otherwise you will not be able to
make an informed decision. When it comes to penny stocks such information is
very hard to come by mostly because it is hidden, it is outdated and much
of the time misleading. For example, Pink Sheets (stocks with a .PK after
the stock symbol) are the most dangerous kinds of stocks because they are
not regulated. They do not have to report to the SEC or anyone else and they
can say whatever they want in public and press releases and there is no way
to verify what little information they do provide. In addition there are
1000s of con artists who disseminate false information about PK stocks in
order to manipulate the stock price for their own benefits. To make matters
worse, much of the information made public about PK stocks is published by
by sources less than credible but those sources often make themselves appear
for New Investors
Microcaps are major problem for the SEC because there is nothing it can do about
it and there is a great deal of fraud involved in penny stocks. There are
literally 1000s of penny stock picks websites out there pumping junk penny
Biased Recommendations – Many penny stock companies and even
individual investors and investing firms hire public relations firms,
individual investors and stock picks websites and pay them well to promote
their stock through television ads, internet websites, radio shows, email
etc. etc. in order to persuade you to buy their stock.
Here is an example:
“These companies have compensated me to have their
As soon as
Many investors allow greed and wishful thinking to cloud their judgment and
invest in all sorts of junk penny stocks. In our opinion 95% of all penny stocks
are junk. Don’t buy any stock pick you see mentioned anywhere or everywhere
without doing your own due diligence. There are countless stock picks websites
run by pampers who have mastered the art of deception. Stay away from them.
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