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Penny stocks..

Discussion in 'Business & Economics' started by palefrost, Aug 8, 2006.

  1. palefrost

    palefrost Well-Known Member

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    Has anyone invested in penny stocks? I recently started researching them and it looks interesting not to mention no real investment lol.
     
  2. Brandon

    Brandon Well-Known Member

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    Investing in penny stocks is not a good idea. Stocks rise due to their demand (that whole suppy and demand thing). Mutual funds account for 90% of stock trading on any given day. So with that in mind, stocks selling for a quarter are priced to low for a mutual fund manager to get a decent stake in the company without driving the stock through the roof.
     
  3. palefrost

    palefrost Well-Known Member

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    but isnt the risk involved worth the potental profit? I mean you are buying i assume because of the risk and hoping to take advantage of panic of the stock market...Your saying its never a good idea? Again sorry im just learning about them so im trying to put it together. :)
     
  4. Brandon

    Brandon Well-Known Member

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    Penny stocks are highly prone to investing scams. Since penny stocks have a low market capitalization (price of stock times # of shares) they can be easily influenced by small amounts of investors.

    One famous scheme is called the pump and dump. An example of this would be:

    Investor buys a large amount of cheap penny stock (under a buck) over a long period of time (as to not effect the price). Then the investor sends out faxes and emails claiming the company he just bought stock in is the next Microsoft. After a bunch of gullible investors frantically buy the stock, it drives the price up. Once the buying is at its peak the investor starts selling. the investor walks away with a ton of cash while everyone else not in the loop loses.

    This scheme is against the law and is enforced by the SEC.
     
  5. Martyr

    Martyr Well-Known Member

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    I wouldn't mess with 'em.
     
  6. palefrost

    palefrost Well-Known Member

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    wow, thanks. That does sound like a lose lose situation.
     
  7. Brandon

    Brandon Well-Known Member

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    You bet it is! Stick with quality companies. Don't buy stocks under $10!
     
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