![]() After all, many of the top-notch companies we celebrate now started off in the same way - priced in low single-digit territory, if not lower.īeyond that, it’s very possible that you can make life-changing investments with ultra-cheap picks. Why? Perhaps it is that foreboding advice that entices folks even more.ĭespite the poor reputation of penny stocks, though - (has anyone not seen The Wolf of Wall Street?) - they do have an admittedly universal allure. Though financial advisors constantly warn people away from them, many don’t listen. The most credible information on a company will come from SEC filings - or an analyst report published by a reputable brokerage, investment firm, or independent financial-research firm.Penny stocks are the ultimate Pandora’s box of the investment market. Adam Selita, chief executive officer of the Debt Relief Company notes, "less than a million shares traded daily is a red flag."ĥ. Find stocks that have high trade volumes so you can sell easily. Look for companies that have assets and some cash on hand, that are earning money, and that are regularly audited. The company should have publicly available financial reports and a reasonable strategy for growth. Due diligence is especially vital if you're trading on your own through a platform like Robinhood, which is particularly popular with the penny crowd (it limits its offerings to NYSE and Nasdaq-listed stocks, by the way). To avoid scams, Asher Rogovy, chief investment officer at Magnifina LLC, emphasizes the importance of thoroughly researching the companies you're interested in. Use your "mad money" for penny stocks, not your nest egg. Penny stocks can be part of one, but it's usually wise to balance them out with cash or super-low-risk investments, like US Treasuries. Most people benefit from a diversified portfolio that limits risk. This leaves other investors with worthless stocks. Bad actors trick people into buying shares in a company, only to sell out when the price rises. The pump-and-dump scheme is particularly common. "Some market participants may conspire to distort prices and trading volumes in order to mislead other market participants." Johnson, professor of finance at Creighton University. Fraud: "Penny stocks are the Wild West of the financial landscape," says Robert R.The limited information can make it difficult to make careful investment decisions. Limited information: Most are traded on OTC exchanges that have fewer rules and regulations - including for filing financial information.Their lack of liquidity can lead you to get stuck holding a tumbling stock. Low liquidity: Penny stocks are thinly traded, which means it can be hard to sell them at the time and price you want.Penny stocks are risky for several reasons: The very definition of volatility, when penny stocks move, they move fast. If you're an adrenaline junkie, penny stocks could be a satisfying way to invest. They're ideal for day traders: people who heavily manage their portfolio and make quick trades to capitalize on small changes in price. ![]() Penny stocks are for investors looking for a thrill. They're a little like lottery tickets: You might win a small fortune but the great majority of investors end up losing. You can make money investing in penny stocks - but most people don't. They are the opposite of blue-chip stocks - those well-established, major corporations that are by-words for slow-but-steady growth. But most have fallen on hard times and are simply not worth very much. True, some penny stock companies are simply new and have little financial history. They're sometimes called "over the counter" (OTC) stocks (though some do trade on stock exchanges) or referred to by the size of the capitalization of the companies that issue them: "small-cap", "micro-cap" or "nano-cap" stocks. The SEC defines any stock that is less than $5 per share as a penny stock. ![]() ![]() Penny stocks are securities that are traded on the cheap. ![]()
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