So you have finally decided to use the money you have saved up and invest in the stock market, particularly, in penny stocks. Believing that the only way to make it big in this world is by building a business or reaping the fruits of your investments, simply relying on your salary from your job won’t do.
Employment is always uncertain and there is no telling when the company you are working for might sink, regardless of how profitable it is today. It is often recommended that if you have some money set aside, you can invest it in the stock market as long as you know what you are getting yourself into.
Penny Stocks: an Overview
If you have just recently gotten into the stock market, then you might probably have not yet learned of what are penny stocks. In very simple terms, penny stocks are investments in companies whose shares are under $5. Typically, this is how the Securities and Exchange Commission would define them. However, there are other forms of investments where the ceiling for a penny stock would be $3 and under. While they are considered cheap, this type of investment is considered to be risky and a lot of brokers would tell you to avoid from shelling out your hard-earned money in it.
Then again, there is some proof that penny stocks have been the viable option in the past and made investors earn a lot of money. This is the main selling point for a lot of companies who are looking for investors in their company. They disseminate information like they are the “next big thing” or the “future Microsoft” which in turn enthralls potential investors to them.
Penny Stocks: The Downside and Things to Avoid Doing
Seasoned investors and brokers often avoid penny stocks due to a lot of reasons that give it a bad reputation. Truth be told, the reasons are actually valid and can give reasons for concern for any type of investor. For one, if a company is selling stocks at a very low rate, it can either mean one of two things or even both. On one side, the company might already be losing money and is looking to attract investors, which can be a reason to lower investment cost. At the same time, said company might already be bankrupt and is just cutting its losses. You would not even know about it until all your money is gone since penny stocks to watch are being regulated with difficulty. Legally, these penny stocks companies are not doing anything wrong which is why they are untouchable until they file for bankruptcy. So, before you invest your money, make sure that the company you are investing in isn’t a sinking ship.
Another cause for concern with penny stocks is the way some of the companies operate in terms of selling their stock. Since the SEC permits it, companies often sell stock to offshore clients at a very low price provided that they sell it back to other investors at a premium rate. This practice is frowned upon, although it is still something that happens today still. The companies will use attractive (often false) information to garner the attention of potential investors as well as use hard selling with experienced sales personnel.
Although a lot of companies on the pink sheets penny stocks are slowly making a name for their own sake and becoming reputable, a lot of the so-called penny stock corporations abuse the notion of making easy money in this type of investment and lure a lot of the uninformed massed. In truth, they are just banking on the hopes and dreams of investors that the money they spent will be for the next big thing in the particular industry. Of course, this often leads to disappointment for the investors. You also need to avoid getting tips from magazines or articles that try to sway you into a particular direction or a company to invest in. More often than not, the very company you are thinking of investing in pay those who write these recommendations so that they will appear to have a very good penny stock picks reputation towards the investing public.
Penny Stocks: What You Should Do
As an investor, there really are a lot bases you need to cover first before you hand over your money to a broker or a penny stock company. The key is to get information about the particular company you are interested in and to get lots of it. Remember, the more information you can gather, the better you will be in making an informed decision whether you should proceed with your investment. Always do a lot of research and investigate on the companies you are considering to invest in. Make sure they are first and foremost a legitimate operation, followed by learn about penny stocks and their status in the SEC as well as if there have been complaints filed against them or if they have had history with violations and the like.
Another important matter to consider with investing in penny stocks is to learn of its liquidity. This is extremely important because it will determine whether the stock can be easily sold when you want to do it. If a stock isn’t liquid, this means that you will have a hard time in disposing of it. In turn, you will need to lower the selling price just to attract the attention of other investors. This of course will cause you to lose more money than you already have.
Penny Stocks: Conclusion
In conclusion, penny stocks are not all that bad. While there are those trying to dupe investors into making a bad investment, there are still some who are worthwhile. The important thing is for you to figure out those that are legitimate and separate them from the unworthy ones. It may be tedious and troubling to do but it is time well spent for money that will be well invested. You should always consult with your broker before making any decision regarding your investment strategies.