Penny stock investing draws a large lure simply because they prey on the common human feeling of greed . Celebrities like Timothy Sykes make their incomes from the emotions around the boom and bust of penny stock investing . The possibility of a 100 bagger appears much faster with penny stocks since you are buying at such a small amount. Well at least that is what you think.
What Is A Penny Stock
The definition of penny stocks is virtually any stock which is trading at under $5 . You often see these types of stocks trading on an OTC , or over-the-counter , market. The common misconception is that the OTCBB which was a FINRA regulated counter is still the penny stock market. In fact what is now known as the OTC is a private market operating on Hudson St. in Soho. They have a wealth of information and the transparency in this volatile market is bar none at the web address www.otcmarkets.com. The good pink sheets are still around, but there are now more robust markets such as the developmental stage OTCQB and the OTCQX which cators to pre-graduation stocks targeting NASDAQ and NYSE.
Shares that trade on the NYSE and NASDAQ are federally controlled by the SEC . This calls for organizations to submit audited finance-related results to the public , that allows us to help make intelligent and often lucrative investing selections .
Stocks that list on over the counter exchanges have more, let’s say, affordable SEC regulation requirements . Pink Sheets have very little SEC oversight until it’s to late. Be aware that many stocks which have gone bankrupt after trading on major market have been through a restructuring which involves the liquidation of assets through chapter 11 and then dissected into multiple shell companies which end up on the pink sheets with little to no value. This creates vast opportunities for unscrupulous people to run up a stock and cash-out to the bag holders. If you are on the right side of the trade, then you will benefit multiple times your bet. But if you are late to the party, you will end up with the broom.
That’s not to say it is a complete waste of energy, to the contrary, It is a goldmine of explosive stocks. You just need to understand what you are doing and have a plan.
Pump and Dump Strategies
You must accept these risks. Because these stocks are thinly traded , they can be more easily manipulated into seeming like a good investment. What occurs in a pump and dump is usually that a promoter purchases the controlling block of a zombie stock then rolls an exciting business model then, convinces the next level of investors to invest with him. Unbeknownst to them they are buying the promoters stock. While investors believe they are getting a great deal or a great investment , the promoter waits for the share price to shoot up then sells his equity to make a great profit . The promoter will often say whatever he can to get those shares higher.
Here are a couple of tips if you would like to get in
- Never put all of your money on 1 stock
- Never buy a stock with negative earnings
- Try to get a stock that pays a dividend
- Use trailing stops
- Research as much as you can
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