Why are penny stocks that trade at a few cents not considered safe?
by Gary James on Saturday, July 17th, 2010 | 4 Comments
I have been reading in a few places that these very cheap stocks are not considered safe. I was hoping to invest alot of money in one that is trading at 0.0092.
Is it because they are a low worth company and could just go bankrupt or what is the reason for them to be considered unsafe.
Hey everyone, Gary here. Stock trading was never my forte'. I lost tens of thousands of dollars listening to stupid advice and letting other people trade for me.
They are considered extremely high risk because they often go to zero. Even if you paid a low amount per share, you can still lose 100% of what you invested.
Bid/ask spreads are huge. For many penny stocks there is plenty available for sale, but no buyers to be found when you want to sell.
You really need many years of highly specialized experience to even consider penny stocks.
because they became penny stocks for a reason. good companies do not have their stocks crushed to nothing, bad companies do. you are hoping to do what many people who are looking for easy money do, you’re thinking "well, if it gains 9 cents im rich!". thats the problem, penny stocks are crap, they are poorly covered so its hard to get good info on them, the companies are usually laden with debt amongst other things (usually poor management too) and it is more likely for them to go to zero than to go up.
Some of them have no assets or revenues. They are worth what they trade at or less. They have no liquidity. They trade wide bid ask spreads, if there is even a bid and ask on them. Most of them trade in the pink sheets or on the Over The Counter Bulletin Board where there is little or no regulation. Its enormously risky.
Junk Companies. Many with great stories. Most "story" stocks die. A penny stock can lose 50% value in a minute. Penny stocks are the last place a novice investor should be in. A good penny stock investor considers themselves doing well when they get 45% or more of their picks profitable. The real key is good money management.