Are you considering buying Penny shares? The dream of many speculative investors is to buy an investment on the ground floor for pennies a share and ride a wave of momentum until it hits the top, then sell it for a handsome profit. Inspired by the stories of people who benefited from this stock trading strategy, these folks find their way to attractive, but infamous penny stocks.
Penny stocks are usually just low-priced stocks that trade on major exchanges on the Over the Counter Bulletin Board (OTCBB) and on Pink Sheets. The Securities and Exchange Commission (SEC) considers any stock trading below $5 to be a penny stock. The benefits of buying penny stocks are often speculative in nature, although some of them are well-managed companies that possess good potential for future growth.
Stocks on the OTCBB must file timely financial reports with the SEC. This makes them as easy to run through financial analysis as most other companies listed on a major exchange, but there are usually a number of factors that make buying low-priced stocks a risky investment as well. to have financial reports available.
Companies listed on Pink Sheets are not required to file financial statements with the SEC. This makes carrying out a complete financial analysis difficult or almost impossible at times. Many of these companies have no track record of consistently good performance or no track record at all. This can be due to things such as: being newly formed or poor management that has led to some serious financial problems.
Buying stocks cheaply on OTCBB and Pink Sheets could potentially open a door for brokers who exhibit questionable or even fraudulent behavior (even more so than stocks traded on major exchanges). The initial public offering (IPO) of a penny stock could be due to the efforts of a fast-talking broker trying to get as much money as possible from interested investors. Also, a business could be next to worthless and the owners are selling it to the public.
The internet is littered with email blasts, newsletters and message boards from firms and brokers trying to let the recipient in on the latest “hot stock” secret that is going to return 250%, 500% or even 1000% if they buy quickly. These are usually penny stocks that might be on the brink of infamy if they aren’t already. The broker might be ready to fold at the first opportunity he gets. These are just some of the reasons why an investor should be cautious when considering including these stocks in their stock trading strategy.
Penny stock companies can vary greatly, from highly visibly structured companies to less organized one-person operations. The same can be said for the amount of information available for the public to evaluate. This makes it difficult to find investment gems to include in your stock trading strategy. Investors should do a bit of research to gain enough knowledge and confidence before considering buying penny stocks.