Penny Stocks – Truth and Fiction

Plenty of information exists about penny stocks, and it pays to know what is real and what is not. Penny stocks are somewhat of an unknown entity, many people know the name but not everyone knows how they work or whether or not they are a wise investment. They can be for the right investor.

First of all, whatever you have received in your email inbox can probably be called the fiction part. If someone is promising big returns on any stock, of any variety then they are telling you that they can see into the future and that just isn’t the case. If they were actually able to tell what stocks were going to rise in price so much do you not think that they would be buying them all themselves? You would think that they were also so rich that they wouldn’t need to send emails to people they don’t know asking them to buy. They can sure sound tempting, but stay away from that kind of thing. The stocks behind these communications often don’t exist at all or are highly inflated. If you are wondering how a penny stock can be inflated, just think of it this way; if it is worth 2 cents and it is sold for 12 cents, it still seems like a bargain right? At six times its value it is not that much of a bargain after all.

Penny stocks might seem to be a little suspect because they are not traded on major stock exchanges. Don’t hold this against them. It is because they do not qualify to be traded on a major exchange. That doesn’t mean that they are traded in shady back rooms or anything. They are traded in what is called the over-the-counter market. This is simply the marketplace for those shares that are not traded in the volumes that the larger corporations see. They still need a broker to be bought and sold. The broker is required to provide a written report of what they have purchased for you. It should also give the most current available stock price and it has to come at least once a month.

They are risky. There is no disputing that. If anyone ever tells you that something is a sure thing, or it is a completely safe bet they are not being honest with you. Either that or they really don’t know what they are talking about or you should stay away whatever the case may be. These are speculative stocks and should take up an appropriate portion of your investment portfolio.

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