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The Insider's Guide To Penny Stocks!
By My Wealth.com
In my 15 years as a professional trader, I have had my fair share of “experiences” with penny stocks. Most recently, I have been receiving a lot of questions regarding this market in the online investing course that I teach. I suppose that with the recent challenges we have been facing in the economy, folks are looking to do just about anything to make money and recoup losses. Here’s what you need to know before you invest your hard-earned dollars in this nebulous market.
There is a lot of confusion out there about what qualifies as a penny stock. The SEC’s own website is very general and therefore leads to a lot of misinformation. What this does is opens the door to the less-than-honest participants in this marketplace (more on this later). Technically, under the SEC definition, General Motors (GM) is a penny stock because its stock is trading under $5.00 and may or may not trade on an exchange (it does!). GM also happens to be a member of the Dow Jones industrial Average (DJIA). So which is it?
The true way to determine whether a stock is a penny stock or not is to look at where it trades, and NOT what its price is! Let’s face it; there are a lot of reasons why a stock may trade under $5.00. The stock could be in distress, it could be a small-cap stock, or it could be a penny stock.
The difference between these 3 examples is that the first 2 trade on exchanges, where there are listing requirements. This leads to more financial transparency and regulation and oversight. The third example, penny do not have these requirements as they trade over-the-counter or OTC. And this is where the danger lies. Not with the price of the stocks, but with HOW they
Local Stocks
The major U.S. stock markets took a tumble last week during news of disappointing earnings, led by International Business Machines Corp., and a negative consumer sentiment report.
U.S. Stocks
The major U.S. stock markets took a downward turn last week as investors continued to fret over rising inflation and the possibility of higher interest rates.
Local Stocks
New fears of inflation and higher interest rates drove the major U.S. stock indexes down last week. It was the third straight week of losses.
Local Stocks
The major U.S. stock indexes fell last week as rising oil prices took center stage.
Stocks
Stocks continued upward last week, driven by a better-than-expected jobs growth report that eased investors' fears about inflation and higher interest rates.
Local Stocks
Stocks advanced last week, powered by an upbeat report on economic growth and some consumer inflation data that didn't rattle investors.
Local Stocks
Renewed fears of inflation and higher interest rates drove the major stock indexes down last week, even as pharmaceutical companies scored gains.
Local Stocks
Blue chip stocks advanced for a third straight week, but a disappointing outlook for Dell and Cisco Systems held back gains in the technology sector.
Local Stocks
The major U.S. stock market indexes rose sharply last week as investors bet that a weaker-than-expected employment report could slow interest-rate increases.
Local Stocks
The major stock indexes eked out gains last week as investors weighed strong earnings reports and Procter & Gamble Co.'s proposed $57 billion acquisition of Gillette Co. against weak economic data and uncertainty over the elections in Iraq.
Local Stocks
The major U.S. stock markets took a downward turn last week amid news of disappointing earnings and a weak consumer sentiment report.
Local Stocks
Stock prices edged down last week amid rising oil prices, weak corporate earnings reports and a record trade deficit for November. But stocks in the Washington region saw gains.
Local Stocks
Major U.S stock indexes took a hit last week and local stocks followed suit after reports of disappointing holiday retail sales.
Local Stocks
The major U.S. stock market indexes lost ground last week in light holiday-week trading.
Local Stocks
Stocks rose again last week, both in the Washington area and nationally, as investors took a bullish stance on the economy's prospects for 2005. The government reported several pieces of positive economic news Thursday, the last trading day of a short Christmas week, including better personal income and durable-goods sales.
Local Stocks
Stocks advanced last week in spite of bad news on Friday: a jump in crude oil prices and a slump in the drug industry.
Local Stocks
Stock prices dropped last week as investors weighed positive news -- steadily dropping oil prices -- against a weaker dollar and a troubling report on inflation.
Local Stocks
Stocks continued upward last week, driven by a 14 percent decline in crude-oil prices. Technology socks, led by Intel Corp., the world's largest semiconductor company, were particularly strong.
Local Stocks
Wall Street resumed its optimistic streak last week as investors anticipated new data this week, on job creation and holiday consumer spending, that could strengthen the overall economy.
are traded.
Penny that are traded OTC are usually traded in 2 venues: the OTC Bulletin Board or the Pink Sheets. These markets lack transparency, regulation and are inefficient in price discovery. And they are not affiliated at all with the NASDAQ marketplace. Scammers will attempt to make this connection to increase credibility. Typically, the that trade on these venues have very low volume and the spreads between the purchase and sale price (bid/ask) are quite wide. It is for these reasons that these markets get a bad rap, and deservedly so.
In Part II of the article, we will examine in great detail the different ways that market participants can take advantage of unsuspecting investors and how investors can protect themselves.
So why do investors continue to speculate in a market that is questionable to say the least? For some, the promise of a tremendous payout if the penny stock goes up is greater than the risk or potential loss they might face. Others have received a “hot tip” on a new company and think to themselves, “What’s the big deal, I’m only going to risk a small amount.” And this is where the trouble starts. This is why I refer to buying penny as “playing the lottery”. Because buying them really is a gamble.
Newsletters, fraudsters, and stock touts or promoters are but a few of the participants who give investing in penny a bad name. These unscrupulous players prey on the greed of the investor, and often times the investor will lose in a classic case of “pump and dump”.
Be sure to check out Part II of the article which reveals how the penny stock scams operate and how to protect yourself from them.
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