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Investing in Penny Stocks
from Investorama.com
Does this sound like a bargain to you? You discover that shares of Fabulous New Products, Inc., are selling for just 32 cents per share. You try to do a little research to find out more about this company, but there's not much available on the Internet. So you go ahead and buy 2000 shares, at a cost of $640 plus commission. How much could you lose, you figure?
Well, you could lose $640, that's how much! And in the world of "penny stocks," chances are good that you will lose out on your investment! Penny stocks are those companies whose share prices are below a dollar. While many investors are attracted to them because of their low prices, they are actually some of the riskiest investments you can purchase.
These are very small public companies, and only a few hundred or few thousand shares of stock may trade hands in a single day. In nearly ever case, penny stocks are penny stocks because they've had a miserable life as a public company. You can bet that companies don't go public with a share price of a few cents! No, these stocks had to fall long and hard in price to get from their initial offering price of $10 or more a share. Penny stocks are the remnants of the stock market, and while some of these companies may claw their way back to the top, many will languish and ultimately die.
Some investors specialize in penny stocks. Typically, these are aggressive individuals who are willing to speculate, and can tolerate huge losses. Most sensible investors will stay away from penny stocks altogether.
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