Penny Stocks – Page 8

Penny stocks are an investment fraught with risks that have the potential to bring unexpectedly high returns. Putting your money in these stocks requires complete knowledge and a lot of courage too. But is the inherent risk of failure worth the dollars and the time you are willing to invest? Penny stocks are not a waste of time because you can make money as a broker, floater, seller, and penny stock buyer. Knowledge is a prerequisite of making money in penny stocks, so you must spend significant time educating yourself before getting involved with these financial instruments. In this article, you will learn more about penny stocks and develop a solid foundation from which you can start building a reliable knowledge base. Topics covered will include case studies of those who got rich with penny stocks, the pros and cons of penny stocks, and who should invest in them. Penny Stocks: A Brief Overview Before making any commitments, it is essential to develop a brief understanding of the penny stocks and their characteristics. These stocks are traded for less than $5 and are generally found on the Pink Sheets and OTC Bulletin Boards. There is often a lack of information about the background of the companies involved. Companies that float penny stocks are either in the depths of debt or on the pathway to bankruptcy. Penny stocks are often considered as a trap for luring naïve, inexperienced investors. Countless scams must be studied before you choose to indulge in ignorance. But the question is, have the dubious penny stocks ever been useful to anyone? Has Anyone Gotten Rich Off of Penny Stocks? The history of penny stocks is filled with pump-and-dump frauds that have been repeated frequently. However, a deep search in the vaults found the story of Tim Grittani. A report on CNN Business was published about a young man in 2013 who had started day trading with pennies at $1500 in 2010. In 2013, the twenty-four-year-old had managed to amass a million dollars from the teachings of Tim Sykes, the guru of penny stocks back in the day. The secret sauce of Grittani's success is not just his luck; it is a strategic investment in a risky venture. He started trading all day on a short-term basis with a flagrant disregard for the possibility of a severe loss. The sheer inefficiency of the market enabled Grittani to recognize a pump-and-dump deal from afar. He had mastered the practice of betting on companies that were shorting penny stocks to pocket profitable returns after repurchasing them at lower rates. Tim Grittani's success story had encouraged many enthusiastic investors, but the success was short-lived as the penny stocks continued to develop an unfavorable repertoire. Pros of Penny Stocks Futuristic Approach to Investment As companies have realized the weak position of penny stocks in the market, they have taken a few cautious steps to fix things. From hiring effective teams for communication and marketing, financial records management has also improved in the last few years. It must be noted that trending industries such as cannabis and information technology that tend to go big have already been invested in boosting the financial ratios for profitability in the future. This implies that if an investor chooses to invest in the penny stocks of an up-and-coming startup that gains momentum, then that stroke of luck can help you gain significant returns from a small investment. Fast and Furious Trading Despite the notoriety that follows penny stocks, it is evident that they can experience a few episodes of speed and luck that help them yield more investment. If you are an adrenaline lover who likes to invest in frivolity, then penny stocks might catch your attention. When a penny stock starts moving quickly on the market price, trading becomes like a game of Jenga. The speed and excitement of trading pennies for better returns can keep the investor engaged and enthusiastic for a long time. Buildable Asset Penny stock trading begins at a rate of $5 or less. Such a minuscule rate for securities indicates the potential for high returns. To illustrate the case with an example, let's hypothetically assume that you have $1000 set aside for investment in stocks. While that money can get you a few stocks from the market mammoths like McDonald's or Starbucks, it can alternatively also get you a high volume of stocks from a small company. Cons of Penny Stocks Entire Loss There is no denial in the fact that the majority of the investors lose their entire investment to a fraudulent scheme of penny stocks. If the loss is not absolute, then it is severe enough to cause trust issues with the stock market for a long time. Penny stocks are thinly traded, which is why their charm quickly enamors investors. This characteristic has led countless inexperienced investors to fall prey to the pathetic pump and dump schemes that are a norm in this market specifically. In layperson's terms, the pump and dump scam creates hype around specific stocks and gathers sufficient investors to take the price up. Once the investor community is deceived, the promoter wins a fancy coin while the investor cries to sleep because of the worthless stocks left in their possession. Substandard Origins Most of the penny stocks originate from companies close to bankruptcy or obscurity. Moreover, they are often tagged mediocre due to their unfavorable financial ratios and frightening balances. There is also a question of competition and obsoleteness of the industry. When the end-user invests in the digital landscape, then a company selling typewriters cannot expect to win at the stock market! Scam Galore The penny stocks are a risky investment that could leave you at the mercy of scams in no time! As discussed above, the substandard origins of the stocks imply a lack of clarity about the company, their reports, and even the company's obligations. The Pink Sheets and Over-The-Counter trading are the most obvious destination for such stocks due to the lack of regulation. The market is inherently down and attracts the wrong breed of companies, so scams are too frequent to be recorded. Even stockbrokers get a fancy penny for trading penny stocks due to the thin trading. Penny stocks have volatile movements, which make them more of a hassle than an investment. They are also illiquid, which defies the purpose of such an investment in the first place! Impulsive Valuation Since there is no strict regulation for reporting penny stocks, they have a unique dynamic of valuations that receive media attention. The easy application of pump-and-dump philosophy has made it easier for scams to name their product, similar to the hit products. The penny stocks of company names sinisterly close to Tesla crashed due to this glitch in the market! Who Should Invest in Penny Stocks? The young investor - Individuals who are new to stock investments can start with penny stocks to experience the ups and downs of investing in stocks. The day trader - People managing a portfolio of quick trades for capitalization are more likely to enjoy the adrenaline rush of penny stock investments. Those who seek instant gratification - Those who look forward to quick answers can opt for penny stocks as a short-term investment. Conclusion Penny stocks seem inherently attractive due to the sheer possibility of high returns. They cost less and are traded thinly. Technically, many consider investing in penny stocks is more like gambling due to the lack of any practical benefits. However, if you know what you are doing and have a well-informed trading strategy, Penny stock trading can yield impressive returns. Hence, it is indeed not a waste of time to invest in penny stocks. Article Sources Important information on penny stocks. (2009, November 12). SEC.gov. https://www.sec.gov/investor/schedule15g.htm Microcap stock. (n.d.). Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/glossary/microcap-stock Penny stocks/ Microcap stocks. (2011, March 16). South Carolina Attorney General. https://www.scag.gov/penny-stocks-microcap-stocks Yousuf, H. (2013, December 16). Penny stock trader: From $1,500 to $1 million in three years. CNNMoney. https://money.cnn.com/2013/12/16/investing/penny-stock-trader-millionaire/index.html