Penny Stock Fortunes - Can You Really Make Money Buying Great Penny Stocks
Many people go to bed each night dreaming about achieving penny stock fortunes. They believe that if they buy great penny stocks now, some time in the future they will be able to sell their stock for millions of dollars. The goal is basically to find the next Microsoft or Wal-Mart.
Stocks are typically classified by the total dollar market value of a company's outstanding shares. It is basically a method for investors to determine the size of a company, instead of using such items as sales or assets. To calculate a company's market capitalization, you multiply the number of outstanding shares by the current market price of the stock.
While every investor has his or her own definition for capitalization thresholds, most professionals would agree than 'Large Cap' stocks have values greater than $10 billion. Penny stocks can also be defined as 'micro cap' stocks. Usually, micro cap stocks have market capitalizations of between $50 and $300 million. The SEC (Securities and Exchange Commission) defines penny stocks as any stock with a market price of less than $5.
Regardless of the terminology used, investing in penny stocks is a high risk, high reward investment strategy. The key to successful investing revolves around information. Penny stocks, which are typically listed on the pink sheets, are not required to file with the SEC. The information that is provided is typically not as regulated as stocks that have to report to the SEC. Fraud and misrepresentation is common amongst these smaller stocks.
Additionally, many times a penny stock is listed on the pink sheets because it is a new company which lacks history. These companies may or may not make it. In fact, it is not uncommon for stocks that are in bankruptcy to appear on the pink sheets.
Finally, penny stocks are risky simply due to the lack of liquidity. With large cap stocks, you will almost always be able to find a buyer when you are ready to sell. Penny stocks do not enjoy this luxury. Having lower liquidity levels makes it easier for scammers to manipulate stock prices. It is relatively easy for someone to purchase large quantities of a stock, promote the heck out of it and then sell it while everyone else is buying it. This technique is affectionately known as the 'pump and dump'.
Penny stocks have a high probability of failure. Most of these companies will only help you lose your money. Sure, every now and then you will here about a micro cap making it big, but more often than not, they either remain on the pink sheets or they fail to make it at all. If you cannot fight the temptation to invest in penny stocks, make sure that you do the proper research. Never invest more than you can afford to lose, because more likely than not, you will lose your money.
Never invest in penny stocks that you learn about from random emails or friends. These so-called tips are usually the result of some form of penny stock scam.
In case you were wondering, Microsoft or Wal-Mart were never considered penny stocks. These stocks had initial stock prices of $15 - $20. Most beginning investors look at the adjusted stock price and think that simply because the adjusted stock price is $0.08, that they must have been a penny stock at one time. Nothing could be further from the truth. These stocks have simply grown, split, grown, split, etc until the adjusted prices seem almost magical!
Do not fool with penny stocks!
I cannot make it any clearer than that!
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Penny stocks offer what I believe to be one of the most explosive opportunities for making money. When I speak about penny stocks, I am referring to any company trading below $5 per share. I have no interest in most of the stuff trading below 50 cents and very rarely trade anything below $1.
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Some people forget the fundamentals of stock market investment when it comes to penny stock. They forget that they are buying a business.
This is a great breath of fresh air. With so many Internet Marketers hyping anything and everything, it's nice to find someone who isn't afraid to say "Stay Away!"
Rock On
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