Penny Stock Investing

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Category: Stock Invest

Penny stocks are basically low-priced stocks that sell for anywhere from $1 to $5, and are generally considered speculative. The term "penny stock" (also called microcap or small cap stock) is most commonly used for the stocks priced at under a dollar a share. Companies such as Jenny Craig, 7-Eleven, and PETsMART started out as penny stocks and are now traded on the New York Stock Exchange and NASDAQ. Like any investing venture, you must do your research and your homework before making any financial decisions. Value is very much in the eyes of the investor. Stock price in and of itself should not be the sole factor on which to make this decision. It is no indicator of past or future performance of a company.

Companies that have been around forever such as IBM, General Motors, and McDonalds - are considered the filet mignon of the stock market, penny stocks fall more in the ground round section of the meat department. Not the best cut of meat, but sometimes you can really pull something tasty out of your hat with enough preparation and attention. The penny stocks are not the ones covered in sources such as the Dow Jones Utilities Average, the S&P 500, the Wilshire 5000, and the Russell 2000. One great resource in the Reference section of your library is the Walker's Manual of Penny Stocks, now in its third edition, which takes a look at 500 companies that may be good risks if you are interested in penny stock investing. Your broker or financial advisor is also a good resource for information.

Most penny stocks trade in the "over-the-counter" market (OTC), and are quoted on the OTC systems such as the OTC Bulletin Board (OTCBB) or the Pink Sheets instead of with the NASDAQ or New York Stock Exchange. Before buying even one share, be sure to check out the company's financials. If the company is registered with the SEC, you will find their financial statements on the SEC's website. If a company is not registered with the SEC, check with your state securities regulator before investing. Because many of these companies are too small to file financial reports with the SEC, false and erroneous information is often the only kind available, which leads to a large amount of fraud being committed. The lack of public information, no minimum listing standards, and risk are the biggest deterrents to investing in penny stocks.