| This warning goes out to newbie investors, and more | | | | the money, and the investors who come in later are |
| times than not, it falls on deaf ears. But I'll repeat it | | | | left holding the bag. |
| one more time just for posterity's sake: if you're | | | | These pump and dump schemes are extremely |
| new to investing, be very careful of making | | | | common, and penny stocks are almost always what |
| investments in penny stocks. You will undoubtedly be | | | | are used for the promotion. Particularly vulnerable to |
| very attracted by the potential returns due to the | | | | this ruse are small and new investors who have tiny |
| deflated share prices, but keep in mind that things | | | | amounts of capital. Most of these types of investors |
| are usually not what they seem to be, and | | | | want to accumulate a large amount of shares with |
| sometimes penny stocks really are "too good to be | | | | the hopes of turning a meager $200-$500 investment |
| true.". | | | | into a retirement nest egg. Most end up losing their |
| Why do pennies pose such a risk? In a word: | | | | capital. |
| reporting. Or more accurately, lack of reporting. Since | | | | These warnings might seem obvious, but it's amazing |
| Over the Counter (OTC) stocks are not listed on any | | | | how often people lose their head when dealing |
| exchange, they don't have to follow the stringent | | | | stocks. Most people feel that the number of shares is |
| reporting criteria which we've all become accustomed | | | | their best chance for making profits. They feel if |
| to for major exchange traded stocks. What this | | | | they can but 100,000 stocks for 0.001 that somehow |
| means is that these companies generally offer very | | | | they'll get rich if only the stock hits 1 cent! This is |
| little financial guidance, and tend to rely much more | | | | true, of course, but almost never happens. Most |
| on hype than exchange traded stocks. | | | | stocks that sell for fractional pennies are more likely |
| Penny stocks usually have very small floats (the | | | | to stay in that neigborhood rather than to rocket to |
| amount of shares actively traded) and for this | | | | even $10. |
| reason, coupled with thin capitalization, the stocks can | | | | Remember that the only metric you need concern |
| be manipulated quite easily by several buyers or | | | | yourself with as it relates to investing is total returns. |
| sellers, and some news or rumors. Many penny stock | | | | The higher your percentage return, the more money |
| companies use spam email to promote their products. | | | | you have. You will never end up concerning yourself |
| They send out to large groups of internet users who | | | | with share price if you are a studious investor. It's |
| end up becoming interested in the stocks. As the | | | | meaningless in the final analysis. For savvy investors |
| emailed people start buying, the price goes up, and | | | | who do a ton of research, finding a bargain in the |
| the investment starts to look like a great deal. At | | | | penny stock heap is possible. Once you've done a |
| this point, the pump and dumpers will start selling all | | | | few trades of "normal stocks" give it a try, but lay |
| the shares they can, and the investment will come | | | | off the pennies until you have a very good |
| back down to Earth. The pump and dumpers make | | | | understanding of what makes share price move. |