| A lot of newbie investors ask me a the same | | | | stock list. So, its upto individual investors and their |
| questions regarding penny stocks. Are penny stocks | | | | brokers to do their due diligence. |
| a fraud? They wonder how stocks with such a small | | | | Why are the stocks of these penny stock |
| market capitalization get any investor money. | | | | companies so volatile? |
| Furthermore, why do these stocks go up and down | | | | Its volatile because of a couple of reasons. One, |
| so frequently and randomly? If they are worth | | | | these stocks are thinly traded i.e. there is very little |
| investing in, how do I pick the best stock to invest | | | | volume. So, one big order for stocks can artificially |
| in? | | | | inflate the price of the stock. Similarly a sell order can |
| These are all excellent questions. Lets find some | | | | trigger a large decline in the stock price. Sometimes a |
| answers. | | | | news story about a new product, drug or service |
| Are all penny stocks involved in a big fraud? No. You | | | | temporarily boosts the reputation of the company. |
| might have seen some news story about fraudulent | | | | Investors buy into the growth story and fear that |
| companies using pump and dump techniques to | | | | they might miss out on the next big move and load |
| artificially create demand to raise prices and then | | | | up on the stock. Similarly if a drug of a biopharma |
| dump the stocks leaving common investors holding | | | | penny share doesn't get approved or a patent gets |
| the bag. These stories are usually true. This industry | | | | denied then there could be a big decline in the stock |
| is not as tightly regulated as the stocks on the larger | | | | price. As you can see the penny stock market is |
| exchanges are. The industry watchdog, SEC, doesn't | | | | very sensitive to newsbytes. So, there is a lot of |
| have a significant role to play here. There are plenty | | | | volatility in the penny share market. |
| of legit companies who are looking to raise cash | | | | How do you pick the best stock to invest in? |
| through a penny stock listing. Some of these | | | | There are a few different ways to go about doing |
| companies aren't big enough to be listed on the larger | | | | that. First, lets discuss how not to pick your next |
| exchanges like the NYSE or the NASDAQ. But, there | | | | stock. Don't blindly go out there and buy the next |
| are good growth companies that make the penny | | | | hot tip from a broker, friend or investing forum. |