Should You Invest In Penny Stock

A Word About Penny Stocks: You may or may not have heard the term “penny stocks” before. It almost sounds like an attractive term, seeming to indicate stocks from companies that have just gone public or are just starting out. Everyone’s got to start somewhere, right? The penny stocks of today could be the Microsoft and Google of tomorrow, right?

Not necessarily.

The Securities and Exchange Commission (SEC) considers any stock that is trading for less than one dollar per share to be a penny stock. According to Investopedia dot com, different investors and investment companies may have differing definitions of what a penny stock is. The one thing that most agree on is that they are risky.

According to the experts at Investopedia, penny stocks are riskier than regular stocks because there is usually less information about them available, they do not need to meet any minimum standards to remain on the smaller exchanges where they are traded, there is not much history about the companies available, and they suffer from a lack of liquidity, making them harder to sell. Because of the absence of minimum standards requirements, these stocks are often targeted by fraudulent and dishonest brokers. Take a look at the film Boiler Room fro an indication of what some penny stock brokers may be up to.

They’re Not All Nay-Sayers

There are some investors that swear by penny stocks. Peter Leeds, owner of Penny Stock dot com, Peter Leeds dot com, and publisher of The Penny Stock Insider newsletter has made a career of recommending penny stocks to his customers, advising on which ones should prove worthy and which ones to avoid.

Leeds does make an interesting point regarding the different definitions of what a penny stock is and points out on his website that under those definitions companies can move in and out of the realm of penny stocks repeatedly over time.

One thing to definitely look out for is spam email offering great deals on penny stocks or any investments. Many of these offers try to tell you that stocks which are currently trading at high prices were once penny stocks. Microsoft and Wal Mart are common examples, but there is no truth to the claim. Both Microsoft and Wal Mart first went public with prices in the twenties and were never considered to be penny stocks under any definition of the term.

Consult your broker for more information about penny stocks and whether they’re right for you.

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