I’ve
received a mail on my Facebook page from one of my readers. Here is his question:
“What are Penny Stocks? Would they be a good pursuit for a novice investor like me? Thank you for your advice”
Penny
stocks are shares of small public companies that trade at low prices per share.
Most of them have a damaged business model. In the United States, the
Securities Exchange Commission (SEC) defines a penny stock as a security that
trades below $5 per share, is not listed on a national exchange, and fails to
meet other specific criteria.
Some
investors make money with penny stocks by buying and promoting them. Because of
the low trading volume, a few new purchasers are enough to boost the stock
price. That’s a very unfair and illegal method. The SEC discovers and punishes
such activities.
A
second possibility to make money with penny stocks is reasonable to the low
stock price. You can easily buy 10k or 50k of the stock capital. If your stock
moves 1 cent up, you have a gain of $500.
For
me is this no argument. Today we have real great leveraged alternatives like
ETFs, CFDs, derivatives or options. With these tools, you can build your own
leverage with the right underlying. It’s in my view safer and better way to
leverage your return.
Finally,
the third way to make money is to tell people how to make money with penny
stocks. It’s a classical way to sell newsletters, research products, stock tips
and so on. For me is this real trash. The biggest player in selling that
bullshit is Timothy Sykes. He sells his life story and the
dream to get rich with penny stocks. But his real money he made was with
selling penny stock alerts, DVDs, etc. – In total a value close to a six-figure amount per month!
I
would not recommend you to trade penny stocks or even to buy such newsletters
or products that show you how you can make money with stock trading. It’s very
dangerous and in the end you are alone responsible for your return – nobody
else.
Keep
in mind that some investors want to make money with you. It’s like playing
online poker. The better informed and longer playing guys make money by
fleecing the new ones and unknown investors.
If you have any further questions, to not hesitate to contact me. If you
like my answer, please
give me a Facebook
Like. You can also subscribe to my free e-mail list or follow me on Facebook or Twitter.
Happy
Investing!
Tom