Are Penny Stocks Worthwhile?

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If you have done any research on how to make money in the stock market, you'll inevitably run across people advocating that you invest in penny stocks. The real question is if this is a viable option. Most people like the idea of penny stocks because they can make substantial purchase as far as the number of shares go. It's alot easier to buy 100 shares of a cheap stock around a $1 or $2 than a hundred shares of a stock trading at say $63.

While I am not a big advocate of investing in these types of stocks, I ran across a guy who calls himself the "Penny Stock Prophet" who claims to have made a fortune off penny stocks. The thing is, I am always skeptical of these types of claims even though there are plenty of penny stock prophet review articles out there supporting his claim.

The best advice I can give about this kind of program is that it might work but I wouldn't make it your primary investment strategy and here is why. With penny stocks it is too easy for someone to manipulate the market price of the stock you want. With a substantial sum of cash, they could drive the price of the stock up by bidding the price up. Next, when the price has gone up, they then promote the stock as a wonderful investment to line up buyers to create artificial demand. When you are ready to sell your stock and take a profit, they have already moved on and there are no buyers for your stock and the stock's price has deflated at that point.

The optimal strategy is to find stocks that are higher in price to trade in. By doing this you can improve the quality of the stocks you have to choose from as well as have a larger pool of buyers available. This creates more liquidity when you are ready to sell, which is what you are going to need. If you get lucky and identify stocks that have strong institutional support when they are getting in, you might be able to follow a huge runup in price as their demand pushes the stock price up. This is more ideal because institutional buyers can't by low priced stocks.

While I'd say it's alright to dabble in these kinds of areas like penny stocks, I'd only allocate a small percentage of your portfolio to any kind of speculation. Only in that case, would I start investing in programs to teach me how to make money in penny stocks.