Avoid the pitfalls of pennystocks

Discussion in 'Penny Stocks' started by remnant, Mar 16, 2016.

  1. remnant

    remnant Well-Known Member

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    Pennystocks are very alluring to small investors who can't afford shares in big companies like Google and Apple. For example, it is hard to reject an offer in a newsletter claiming that the pennystocks of their companies will rise from 0.3-1$ per share. Most people make the mistake of waiting for big highs in order to sell. The pennystock sector is awash with scammers and you should sell quickly after short increases of 20-30%. Do not sell short based on pumped up hype created by newsletters and social media. You could end up making losses of up to 50%. Worth noting is the reason a company is launching a subscription. For example, the Facebook IPO only stated that the reason for doing so was exposure. Shares with 52 week highs and of companies which trade trade in large volumes are the best.
     
  2. Corzhens

    Corzhens Senior Investor

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    I remember in the olden times, our employer had a cooperative that deals with penny stocks. All the employees were offered to buy shares and we did. For a 100-peso share, we sometimes get more than 50 pesos as dividend in a year. I was lucky to have 1,000 pesos for my share so my dividend was substantial. However, when the going went tough, the cooperative succumbed and the stocks were lost... sadly, that coincided when our company closed shop.
     
  3. xTinx

    xTinx Active Member

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    I'd rather invest a large amount and own shares in stable well-known companies than fund a venture with shady origins. Unless I don't mind losing that much. I guess the right thing to do is to do your research before jumping the gun. Think things through before joining the bandwagon. When something is too good to be true - and pennystocks offer that kind of feeling - it's worth mulling over.
     
  4. crimsonghost747

    crimsonghost747 Senior Investor

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    If you can't afford to fork out a couple hundred dollars to invest then you can't really consider yourself to be an investor. Seriously, if you don't at least use SOME money you will never get any substantial results.

    And for a beginner anything is better than pennystocks. Just use a simple ETF / mutual fund where you can do montly purchases with little to no fees. (so you can do it $10 at per month if you want)
     
  5. JR Ewing

    JR Ewing Super Moderator Staff Member

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    It's rare that you find a stock trading below $1-2 that has solid fundamentals, strong sales growth, healthy volume, institutional ownership, above average products or services, is trading on a reputable exchange, etc. Very few low-priced stocks have these things going for them, and are therefore generally not good investments.

    If you do find the odd few low-priced stocks that have these desirable characteristics, there is still no guarantee they will turn out to be wise investments. Best to dabble very lightly, if at all with low-priced stocks.

    Re shorting, stocks that drop down below $1 are usually no longer able to be shorted. But since the theoretical loss risk in shorting is unlimited, it is not something most investors should do anyway.

    http://www.businessinsider.com/joe-campbell-gofundme-page-for-e-trade-2015-11
     
  6. puru rama

    puru rama Active Member

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    Most financial advisors and long-term investors tend to avoid penny stocks for a reason. These smaller-company stocks traded on the over-the-counter market tend to fluctuate wildly in price and although some report spectacular gains in a matter of a few days (or even hours), don’t be surprised if they disappear altogether.

    Generally if a stock is trading as low as pennies to a few dollars it’s in danger of losing its listing with the national securities exchanges such as the New York Stock Exchange, the American Stock Exchange, and the Midwest Stock Exchange. When this happens a company is normally either in very bad financial shape or on the brink of bankruptcy, though sometimes companies issuing penny stocks are simply new to the market. They may not have been in business long enough to establish a proven track record or credible financial history. Another characteristic may be an inexperienced management team. These factors undermine market reception and the ease with which penny stocks can be traded.

    Some penny-stock brokerage firms resist investors’ attempts to sell their stocks for cash. The broker might become "unavailable" to an investor who wishes to sell, or the broker might refuse to accept the sell order unless the investor agrees to buy penny stock in another company that the brokerage firm is marketing.

    If you do decide to purchase penny stocks, strongly consider limiting any single purchase to no more than 5 percent of your portfolio. That way even if you do take a loss, you probably haven’t invested more than your can afford to lose.
     
  7. Mike Hills

    Mike Hills New Member

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    Your insights give me another reason to double check the risk of trying penny stocks. Well I think I can still try but as stated, limit it to single purchase just enought to add to my portfolio.
     
  8. longtermbull

    longtermbull Administrator Staff Member

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    From small acorns grow large trees - there are still some interesting small companies out there but you might have to dig deep to get info. Also, the risk factor will be higher than that for traditional more recognised stocks.
     

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