Unfortunately, the price of entry to the stock market for many budding investors can be quite prohibitive. Depending on your point of interest, you could spend hundreds or thousands of dollars to invest in stocks based on per-share pricing.
However, budget-conscious and adventurous investors can take advantage of penny stock alerts and newsletters. Before we get into all of that, let’s first take a brief look at penny stocks.
What Are Penny Stocks?
Penny stocks are stocks publicly offered by companies that are worth less than $5 a share. The term, “penny stock,” is a misnomer in this regard. They are also known as small-cap or micro-cap stocks as well. Most companies that offer shares worth less than $5 are new or established companies that have become severely devalued.
The majority of penny stocks belong to companies that are relatively new. So, they can be hard to research to determine realistic investment viability. In other words, they can be difficult to determine if they are worth a long-game investment. Also, penny stocks have low liquidity values. That means that because their pricers are so low, they might seem unattractive to the average investor.
Penny stock owners must sell them at lower prices at ever more increasingly difficult odds of profiting. Also, there are no minimum or regulatory standards when it comes to penny stock trading.
Over the Counter Trading
Stocks traded through the NYSE, NASDAQ, or S&P 500 must adhere to standards and regulations as dictated by the Securities and Exchange Commission. To publicly trade stocks on major financial market exchanges, information like market capitalization value, available shares, stock price, and the number of shareholders must be publicly available.
Penny stocks can’t meet these standards, so they are never available for trading on major market exchanges. You can only buy penny stock through a stockbroker or through over the counter investing. The Over-the-Counter Bulletin Board, also known as the OTCBB, maintains a listing of penny stocks. OTCBB has minimal listing requirements. Another penny stock listing directory is Pink Sheets, although it is not registered with the SEC and has no listing requirements.
Penny Stock Alerts
Penny stock alerts are email alerts, newsletters, and investment encouragement offered by penny stock brokers, companies, and advocates. Such alerts will inform you of penny stocks that you should consider investing in.
Use penny stock alerts as a starting point for detailed investment researching before you begin investing. Otherwise, you may end up with a lot of cheap stock that you can’t sell.
Scams
It is important to do your homework, to thoroughly research the penny stocks that you plan to invest in, and to consult the help of a financial adviser. Penny stock transactions are highly speculative, volatile, are not regulated like major stocks, and can be used as vehicles for scams.
For instance, with pump and dump scams, scammers buy lots of cheap and/or worthless stock, convince novice investors to buy them at high prices, and then sell their own shares when the stock price surges.
You should also treat penny stock alerts as investment research guides. View any penny stock alert with discerning skepticism. By some estimates, over 85% of penny stock alert issuing brokers and companies are compensated by the same companies they are showcasing. Also, you should receive an official risk assessment guide by any penny stockbroker who trades on your behalf.
Know the Risks
Penny stocks are an affordable entry point into the small-cap stock market but is fraught with risk. The intent is not to dissuade you, but to stress that you must find the right penny stock for your investing incentives. On a positive note, keep in mind that companies like Ford, GMC, Pier 1 Imports, SiriusXM, Monster Beverage, and more, have all been part of penny stock lists at one time or another.
Read More
- Finding your Investment Style: A Starter Guide to Stocks
- 3 Red Flags That Identify Risky Stocks
- 8 Alternative Investment Choices for When You’re Bored of Stocks and Bonds
- How We Make Money Swing Trading Stocks
Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.