So, Are Penny Stocks Safe Investments?
The answer is a resounding No.
Penny stocks may sound like an attractive investment option because they’re so cheap (the term “penny stocks” actually refers to stocks trading under $5 per share), but they are considered very risky for a few very important reasons.
A company that’s trading penny stocks is typically either a very young company that’s trying to get off the ground, or a company that’s been an almost complete failure and is on the verge of bankruptcy. The problem with determining whether it’s a new company with no track record or a more established one with a bad track record is that penny stock companies are not required to disclose as much information as companies that are listed on the big stock exchanges, like the New York Stock Exchange (NYSE) or NASDAQ. Companies registered on those exchanges are required to meet stringent criteria concerning not just performance and earnings but also transparency and accuracy in describing their financial position.
In fact, one of the main risks in investing in penny stocks is that you could hear gross misrepresentations of a company’s current fiscal health, and not be able to find out the truth until it’s too late. Companies trading in penny stocks will also try to create false word of mouth about their fiscal health, in order to get you excited about their potential for growth. Many of the people and brokerage houses touting these penny stocks are also located offshore.
It’s important to educate yourself thoroughly when it comes to penny stocks. Many people see them as a way to get in on the ground floor of some company that’s about to really take off — so invest in their stocks while they’re cheap, and hence make a fortune. If this happened with any frequency you could be sure that trading in them would have a more respected reputation than it has now. So, be sure to consult with a financial advisor before you put your money into penny stocks.
Do you have any stories to share about an experience investing in penny stocks?
I have never invested in penny stock, but I feel like I must do something before the Government takes all my funds away and furlow my days into months. Can you help me out in this? Is there web sited I can trust for researching penny stock companies, and a web site that recommends intelligently which P.Stocks are best to invest into? Thanks,