Penny Stock Investing

Penny Stock Investing. Investments in Over the Counter stocks.

Penny Stocks - Beware!

The use of the word "penny stock" has evolved with the stock market. In earlier times, penny stocks referred to stocks that traded for amounts that were less than a dollar for each share. The SEC, though, changed the definition to include all shares that traded below $5.

While some of these stocks are now trading above $1, why are they still being referred to penny stocks? Even though some of these stocks are still selling for more than pennies, they are still being called penny stocks because they are considered in the same way as stocks trading under a dollar were thought of in the past: as very risky investments.

Penny stocks are actually growth companies that have limited cash and resources. For this reason, most penny stocks are considered to be very high-risk investments with low trading volumes and limited attention from investors.

You will find these companies traded mostly on the OTCBB and Pink Sheets. They are also thought of as susceptible to different forms of market manipulation that are less apparent and more difficult to deal with in stocks found on the NASDAQ and NYSE.

As an investor it is smart to be wary of penny stocks. The chances of any kind of huge profit are weighed by even larger chances of losing it all. Also, stay clear of those who tell others that companies like Microsoft were once penny stocks. This is not the truth in any form. Microsoft was not (and very likely never will be) a penny stock.

Successful companies don't just appear over-night. They have to work their way up just like everyone else. Very foolishly, some investors believe that finding the next "big one" means scouring through the penny stocks in hope to find the next Microsoft or Wal-Mart. As is obvious by now, this is probably not the best strategy.