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What are the ups and downs to investing in penny stocks?

December 21, 2007 by   Filed under Todays Watchlist

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What are the ups and downs to investing in penny stocks?
2007-12-21 02:48:42
How reliable are they? What kind of hoaxes are there out there involving these kinds of stocks? What are some of the best ways to invest in these stocks? Is it even worth my time?
penny stocks
How certain are they? What kind of misinformation out there is the involvement of these kinds of stocks? What are some of the best meaning investing in these stocks? It is also worthy of my time?

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8 Responses to “What are the ups and downs to investing in penny stocks?”
  1. John says:

    The ups – you make a killing

    The downs – you loose the shirt on your back, this happens more than you make a killing.

  2. Jonathan T says:

    Penny stocks are one viable category to place your “risk capital.”

    Risk capital is essentially–gambling money.

    For example–Northwest Airlines was a penny stock one year ago…here’s what would have happened:

    Purchase for $0.60 per share. Stays in this range for several months.

    In the fall, Delta airlines was rumored to be a buyout target. Northwest shares jumped to $2.50 per share (soon after below $2.00).

    This spring, Northwest came out of bankruptcy and is a profitable company with good cost structure.

    You’re shares—canceled and rendered worthless. New company stock was issued.

    Penny stocks can be a fun way to play the market. An investment? No.

    If you play them, sell 1/2 of it when they double, and dump them when they get cut in half.

    The ownership stakes in penny stock companies are (literally) worth only pennies. They are good for trading only.

  3. Peaches says:

    Penny stocks tend to be more volatile, which means higher high and lowers lows (including losing everything).

  4. Adam J says:

    For a couple of reasons virtually all companies will try to price themselves above $10/share.

    This means that penny stocks are penny stocks because something has gone seriously wrong with the company (ie drug companies whose drugs didn’t work, companies a million miles away from profitability, on the verge of bankruptcy, etc). If the stock turns around you can make a killing, but you can also lose all your money. For example a month or two ago I spotted a company that is researching high tech brain implant systems. Amused and having a little cash to kill, I bought 500 shares (worth about $400) The shares have dropped by about half since then.

    In general I’d avoid unless you truly have money to kill and enjoy gambling.

  5. Terry says:

    Penny stocks are the equivalent of gambling; they are not an investment strategy. Almost anyone investing in them is going to do poorly; most will lose money.

    Individuals should restrict themselves to reliable index funds that will over time out-perform any single stock pick.

  6. doofuss says:

    I wouldn’t touch penny stocks with a 50 foot pole.Here’s why:

    I am on a bunch of mailing lists, and as a result, I get a lot of “brochures”shouting the praises of specific penny stocks. I’ve tracked close to 60 of those dogs during the last 2-3 years, and at least 95% of them are down A LOT!!

    The people who send this junk are probably playing the pump-and-dump scam, in which they try to create a big demand for the stock after they’ve bought a bunch of shares. When the price goes up temporarily, they sell their shares.

    By the time we get the brochures, the price is up already. But it goes down very suddenly.

    These guys are also trying to sell you their advisory service. They tell you about their 5-6 successes, but they never tell you about their 15-20 failures.

  7. Daytrader Anne says:

    I started investing in penny stocks a few months back. I had done quite well with my initial $14,000 investment that I started playing with back in September, making about ten thousand, so I took out ten thousand of it to gamble in the penny stock arena.

    I didn’t leap in blind. I spent a couple of months analyzing the advise from many of the Yahoo penny stock groups, as well as the advice from various penny stock sites. After I had determined which ones had the best track records (real-time only, don’t believe any website claims, group history can be useful because you get lots of history that you can believe)

    I’m now down about 50% of my original investment. Penny stocks are hit-and-miss. Sometimes your stocks go down by 75%, and then you have to just sit on them and wait until they either spike up or die. If you “chase” winners you just lose your money. So far, I’d have to judge the “penny stock experiment” a failure, but it’s only been a couple of months so I’m not willing to give up yet. I’ve had a couple of stocks that spiked and I sold them at 100-250% of the original price. Most of them are way down.

    Oh, and be careful who you trade through. Most brokers will tack on an extra per-share cost to stocks that sell for under $1. If you are buying shares selling at .005 and your broker adds on an additional .005 per share your stock would have to double for you to break even. Not a good thing. I use TD Ameritrade because they charge a flat rate of $10 per trade, no extra charge for penny stocks.

  8. touzi b says:

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