Bargain-basement buys Penny stocks have a bad rep
Post# of 47038
Posted On: 08/31/2013 9:13:04 PM
Bargain-basement buys
Penny stocks have a bad reputation, and justifiably so. Speculating on stocks trading below $1 per share and companies with minuscule market caps can be exciting, but it's tantamount to gambling at the craps table. While it could be argued that all investing is a form of speculation, in the penny stock universe, this is particularly true.
The microcap space is littered with scams, pump-and-dumps and outright frauds. Swindlers prey on investors' greed and desire for quick profits by making outrageous claims about tiny companies and suggesting that a small investment will turn into an enormous windfall.
Of course, this rarely happens. In fact, the opposite is normally true, and investors end up losing their shirts. But penny stocks can also hit it big.
The microcap universe is risky not just because of the preponderance of scams but also because of the shaky financial footing of most of the companies.
Many penny stocks are legitimate businesses, but they are almost always undercapitalized and not yet successful in their industry. If they were industry leaders, they wouldn't be penny stocks.
The other type of penny stock that investors may be familiar with is the formerly successful company that has hit hard times. This is not uncommon. Often, the market expects that these companies are heading for bankruptcy (and sometimes they are) and prices the stock accordingly. But occasionally, such stocks rebound to produce staggering gains.
So while penny stocks have a bad reputation, that risk comes with the potential for massive reward.
Good Luck
Penny stocks have a bad reputation, and justifiably so. Speculating on stocks trading below $1 per share and companies with minuscule market caps can be exciting, but it's tantamount to gambling at the craps table. While it could be argued that all investing is a form of speculation, in the penny stock universe, this is particularly true.
The microcap space is littered with scams, pump-and-dumps and outright frauds. Swindlers prey on investors' greed and desire for quick profits by making outrageous claims about tiny companies and suggesting that a small investment will turn into an enormous windfall.
Of course, this rarely happens. In fact, the opposite is normally true, and investors end up losing their shirts. But penny stocks can also hit it big.
The microcap universe is risky not just because of the preponderance of scams but also because of the shaky financial footing of most of the companies.
Many penny stocks are legitimate businesses, but they are almost always undercapitalized and not yet successful in their industry. If they were industry leaders, they wouldn't be penny stocks.
The other type of penny stock that investors may be familiar with is the formerly successful company that has hit hard times. This is not uncommon. Often, the market expects that these companies are heading for bankruptcy (and sometimes they are) and prices the stock accordingly. But occasionally, such stocks rebound to produce staggering gains.
So while penny stocks have a bad reputation, that risk comes with the potential for massive reward.
Good Luck
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