In today’s economy, it is very difficult to know for sure which type of stocks to invest in. This is why a lot of investors have switched their attention towards penny stocks. They are quite affordable which makes them really popular, as well as being very attention-grabbing.
However, not everything is crystal clear when it comes to this type of stock. While they are quite on the cheap side and a lot of people have already spent good money on different portfolios, there are those who warn against it. Before you invest your money, you should learn about penny stocks and everything about it.
Penny Stocks: Overview
Penny stocks are generally the type of investments where the value of each stock is under $5. Simply put, they are those that are not expensive to invest in. Alternately, they can also be known as “micro cap stocks” as well. This is according to the Securities and Exchange Commission, although some cut off the term at under $3 or even $1 per share. So what makes penny stocks very popular in the first place? In a nutshell, it is mainly because of the low price and not anything else. A lot of investors, both amateur and seasoned, believe that a lot of the billion-dollar companies today started with penny stocks and only increased in value over time. As a result, they believe that they are investing in the next Microsoft or another high-profile company.
Not completely rubbing off on the possibilities, this can really happen especially if the company makes it big and becomes a success. However, a lot of the issues with penny stocks rise because of lack of information or some investments appear quite on the shady side. Nonetheless, its fame sees no dissipation and only continues to rise especially in this state of the economy. A lot of investors are looking to make a quick buck and expect some of those to come from this type of investment.
Penny Stocks: How to Invest
If you are interested in learning how to invest in penny stocks, you can do so with ease as you would any other type of stock you can find. The only differentiation you will be able to discern with it from other types of stocks is with its incredibly low price. Typically, you will be able to find a penny stock that is under $5. However, that is not all it is limited to. At the same time, a penny stock can also be priced for lower than a Dollar depending on the company offering it.
With its low cost, one would be able to invest a lot in a single portfolio. In the event that the company makes it big, the investor would be able to make a lot of profit in return ideally. That is the main hook of investing in a penny stock, which is the possibility of earning a lot of money for very minimal investments. If you would like to dabble in the stock market but only have not so much to invest, looking into this type of stock would be suitable for you. However, it is also recommended that you look into other options before making your own informed decision.
Penny Stocks: What to Look out for
The problem with penny stocks is that they are highly unregulated by the Securities and Exchange Commission, which creates room for a lot of mistakes as well as fraudulent companies. Since they are very cheap, a lot of people are baited into believing that they have found the next big thing and will become rich in the future. That is one large issue that the governing bodies face as fraudulent companies will make promises and create false information to bait investors into putting their money and trust in them. Of course, in the drop of a hat, all of the money is gone and investors have already thrown away their future.
Another telltale sign that investing in penny stocks is dangerous is the fact that some of the companies that do this are in danger of becoming bankrupt or are slowly sinking. If a company is making money, it will naturally increase its value, which means that stock prices go up. The best penny stocks will never “go on sale” or lower the stock cost for investors for any reason whatsoever. In relation, what worries investors a lot regarding this type of stock is that there is virtually little to no information at all when it comes to getting to know the company they are investing in. Ideally, sufficient data is provided so that investors would be able to make an informed decision whether the penny stock is worthwhile to invest in. A lot of the companies that offer this type of stock do not provide such at all.
Finally, penny stocks often become dangerous due to biased recommendations given by the media and penny stocks brokers. As an investor, you would often heed the recommendations of articles you read on magazines as well as information you receive on radio and even television. Do note that people who make such recommendations are often agents of companies that sell penny stocks. So, as a result, not every little piece of information that is disseminated to you may even be accurate at all. If ever you would receive information, always dig a little more and take some time to gather all information you can about the company.
Penny Stocks: Conclusion
Investing in penny stocks is often considered to be a double-edged blade. On one side, the investments are really affordable which gives you the opportunity to buy a lot of stock. On the other hand, you can easily lose your money as fast as you invested it. Also, do not invest with the mindset that a lot of the big corporations today started out with penny stocks. This is most often untrue and used as bait to trap misinformed investors into sinking all their money into the company. Get every little bit of information that you can and decide for yourself whether to invest in the stock or not.
