Penny Stocks Investments

Penny Stocks Investment: Key Considerations

Penny stocks are under categorized stocks compared to blue chip as these companies have low capitalization, poor or low financials and have relatively high stock price movement. As these companies are young, they have better chances of growth to multiply and hence stock price return are also very high but on flip side as these companies are small sized, tend to be volatile in terms of price, non liquid in nature. Any adverse event can break down its stock price and investors can end up losing all their money.

The important fundamental to follow while investing into penny stocks is to consider the value, rather price of stock. Penny stocks are meant for long term investment and it must be rather based on value of business rather just price. Know more about concern of the investors here.


Below are some key points to keep in mind while investing into penny stocks:

  1. Extensive research: As described above, the investors must consider the value rather than the price of any stock. To evaluate the value, investor must have to do extensive research of company’s financials of not only past and present; but also need to evaluate future growth of business.
  2. Trading Volume History: The historic trading volume of the stock need to be clearly evaluated as most of the penny stocks are ill-liquid & volatile in nature. There are cases when you want to sell your purchase at higher price, there can be lack of buyers.
  3. Manipulations: These penny stocks are more prone to manipulations and as result stock price gets volatile. Investor must stay away from stocks which are more prone to manipulations.
  4. Myths about Penny Stocks: General Myth regarding penny stocks is ‘It can’t go any lower’. When the stock had fallen sharply, it will be traded at its lowest price. Investor must avoid this myth and stick to basics of investing in value rather than price.

Penny Stocks: Concern of the Investor

Penny stocks are the low priced and ill-liquid (thinly traded) stocks traded in the stock market. They are relatively cheap as compared to other blue chip stocks. So, it becomes a center of attraction of most of people and they find fascinating to buy these stocks. It is a general phenomenon of belief of majority of people that low price stock can easily tend to give better return in terms of percentage or even can multiply from its current value but the high priced blue chip stock can only give nominal returns.

The nature of penny stocks and myth of people that these stocks are best source of investment for definite high return end up becoming a major concern for them. These stocks are target for the stock promoters and manipulators. These manipulators initially buy these penny stocks in huge quantity from the market and then inflate their stock prices though false, misleading and speculative statements. Risk factors should be kept in mind before trading in penny stock.


They promote various false positive statements through various means like Bulk SMS, newsletters, websites, stock message boards, fake press releases, chat rooms and E-mail blasts to drive the interest of the stock into mind of small investors. As a result of this, the stock price starts to move up and looking to it, people tend to believe in the artificial hype and start buying the stock. Now the buying gets totally exaggerated and stock price tends to increase more and starting trading far above its fair value. The manipulators start dumping their investment bought at very lower or nominal price leaving people trapped at high prices.

It ends up making common people/investor trapped into poor and highly priced penny stock and eventually making a concern for people to invest into penny stocks. Pump and Dump schemes can be looked on for a better way of purchasing


Penny Stocks: How these can create Millionaires?

Penny stocks are publicly traded stocks of small companies that are traded under $5 per share. They are also like other traded stocks which are also regulated by SEC but rather get traded on main stock exchanges like NYSE; they are traded on OTC (Over the Counter) market which is also very much accessible for general public.

Undoubtedly, these penny stocks are cheap priced and relatively high risky stocks compared to blue chip category, but regarded as best long term investment stocks to get multiple return. Small companies are growing in terms of their business and can give multiple percentage growth. The stock price of young and prosperous companies, which has given favorable business growth over the past years can increase by huge percentages in short span of time. Penny stocks have created a lot of millionaires, but those people have attained the money either by scam or fraudulent methods.


These penny stocks are those hidden gems, which analyses and picked carefully can be a great opportunity to earn significant upside and create millionaires. Despite of knowing about Penny stocks, people prefer them for the following reasons:

  1. Minimal Investment Needed: These penny stocks just require minimal investment due to its low price. For the price of just one share of large company, an investor could buy thousands shares in penny stocks. So, there is an opportunity to earn huge with minimal investment.  Know more about Penny Stock Investment.
  2. High return potential: Penny stocks are traded at very low prices and any favorable growth seen in the business can tend to make the stock price double or even triple in very short span of time.
  3. Interest of big investors: Interest of big investor is very important of any stock to outperform. The big investors always look for value in stock, once they locate a hidden gem they tend to take that stock to great levels.

Penny Stocks: Factors to worry

Penny stocks are relatively low rated and less priced stocks traded in the stock market. These are stocks categorized to be traded under the price of $5. These have ability to give tremendous returns to an investor, if the investor chooses the stock wisely. On an average, there is only 1 out of 100 penny stock that can prove to be a real gem.

In spite of these penny stocks can be a game changer for any investor, on the flip side, these penny stocks have lot to factors to worry for a small investor.

Penny Stocks Factors to worry

The risk factors in Penny stocks may involve:

  1. Manipulations: These stocks are easily prone to manipulations by big investor. Promotion of various false positive statements through various means like Bulk SMS, newsletters, websites, fake press releases, and e-mail blasts to drive the interest of the stock into mind of small investors.
  2. Success ratio: On an average only one or two out of 100 penny stocks becomes a success and others proves to be a nightmare for the investors, which makes them lose their investment.
  3. De-Listed: The major markets don’t allow these penny stocks to linger forever. Continuous fall result in failure to meet the standards, resulting in no buyer and ultimately may get de listed by stock exchange.
  4. Go Lower: It is just a myth that it can’t go further lower than this. Ultimately, these penny stocks can go as much lower and can go to zero level too. Get to know how to avoid risks in penny stocks trading.
  5. Easily Attracted: In spite high risk of getting money dumped, these penny stocks are real attraction for small investors due to their low price.
  6. Highly volatile: These low prices stocks trades with real high volatility compared to blue chip. The price movement is too high as they can move either way in high percentage terms.

Penny Stock Risk

Penny Stock Risks

American public are curious about penny stocks and most of them don’t prefer to take them. Traditional penny stocks are not defined by SEC and hence, these are the non secured stocks included in pink sheets or OTCBB. Penny stocks can get appreciable results only if full research is made before investing in them. There are many risks involved in penny stocks and people need to make sure that they are finding the best ways to get through these risks.

Risks involved in penny stocks are defined below:

  • Penny stock companies are associated with startup options having less information and history. The financial sector companies have less or no transparency in their ideas. The misguided assets and wrong assumption of companies might lead towards misleading of stocks. The banks can only reveal the truth with financial statements and progress of these companies.
  • Penny stocks have the large stock blocks meant for ensuring the interests aligned in the best way for getting profits. These stocks are not preferred due to their fluctuations in prices. The shareholders make sure that penny stocks are sold/ purchased in the appropriate way. The most fluctuating stocks should be least preferred as there are chances to lose your money due to association with wrong companies. The tools and motives have to be followed to get the best approach.
  • Penny stock companies get stock promotions quite often and it becomes lucrative for the investors to buy the stocks of advertised companies. You need to make sure that every advertised stock is not good because they might aim at fooling you to get all your money.
  • Pump and Dump scams are very scary and they have the trend of attracting the investors and making them purchase the stocks, which will be dumped after a short period of time. Promotion is indeed important for every company, but it shouldn’t be taken too seriously by the investors as it could be a scam.


Penny stocks are highly influential and involve certain techniques and researches to make right investments. There is a great risk and volatility involved in these stocks and it is rather important to make the correct and well informed move. Higher risk also corresponds to attain the best profits with appropriate investments. Information on penny stocks risks can be viewed here. It is essential for the stock owners to get full knowledge about penny stocks and then make investment. There are billions lost by people in penny stock investments, but with ethical new companies, there is a chance to get better scope and get rid of the stock risks.

Penny stocks are often used by scammers, but a very few companies (about 5%) begin their businesses with low cost stocks and make sure that there are proper stats and financial reports mentioned about the companies. Cash requirements for small companies can be fulfilled with penny stocks and they can be the best way to gather money and make best out of your finance related efforts. Find out the best companies to make investment and then take the decision about your investments