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| MissDawn |
 Posted: Thu Feb 10, 2005 8:38 am Post subject: Buying Penny Stocks |
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Investing Associate
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| Does anyone else do this?I don't but I was thinking about it.Any good advice? |
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| Imzadi |
| Posted: Thu Feb 10, 2005 10:22 pm Post subject: |
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Investing Associate
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| I've always heard, regardless of the price of the stock, is the product they make a good buy? Would YOU buy it? |
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| Stacy9402 |
| Posted: Fri Feb 11, 2005 7:13 am Post subject: |
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Investing Associate
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| Wow.. There are such things as penny stocks.. |
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| TheDisneyBunch |
| Posted: Fri Feb 11, 2005 7:54 am Post subject: |
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Investing Associate
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| Do your research. You could lose as much money as you could make with penny stocks. They can go belly up at any time. |
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| dman81 |
| Posted: Tue Feb 15, 2005 5:30 pm Post subject: |
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Investing Sr. Associate
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| But you can also make a ton of cash if you play your cards right. Its like "Imzadi" said... all about the product or service. |
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| InvestingMac |
| Posted: Wed Feb 16, 2005 11:47 am Post subject: |
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Investing Manager
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Definitely a high risk investment.
As has been suggested: Do your research. Inside and out.
The problem is that even a small company offering a good product/service can be running low on capital behind the scenes. |
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| ammo |
| Posted: Wed Feb 16, 2005 11:55 am Post subject: |
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Investing Sr. Associate
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| Can Someone Explain what penny Stocks is exactly? |
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| InvestingMac |
| Posted: Wed Feb 16, 2005 6:08 pm Post subject: |
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Investing Manager
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| A penny stock is a stock that trades for less than $1. |
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| ammo |
| Posted: Thu Feb 17, 2005 10:25 pm Post subject: |
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Investing Sr. Associate
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| Yeah i guessed that but how can that be that risky? as said previously in this thread |
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| CapM |
| Posted: Wed Feb 23, 2005 4:30 pm Post subject: Response |
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Investing Associate
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Penny Stocks (some define as under $1 market price, some say under $5) are VERY risky investments.
General rule of thumb = Don't Do It
These companies go under all the time and unless you are willing to do an extensive analysis of their underlying fundamentals, business plan, industry, etc., and most importantly, you know how to perform these types of analyses, you are dealing with disaster.
Take Kmart as an example. Kmart's shares fell into the Penny Stock range, and it was pulled off the exchanges. A lot of people thought, "hey, Kmart can't go under. I'll buy shares now, while the price is low, and it will eventually bounce back." But wait, Kmart did recover, didn't it? Well, it did recover, after it cancelled out ALL of its old shares when it reorganized. All those people that thought Kmart was going to "bounce back" lost all their investment. Now that was Kmart. What about all the other companies tht nobody has ever heard of? See the risk?
There are a bunch of items that make Penny Stocks risky
- they trade OTC (over the counter) and not on a listed exchange. The NYSE, for example, has rules and requirements that companies must follow in order to be listed. A penny stock does not have to follow them.
-they are "thinly traded" - which means that there are not many people out there buying and selling these investments. This has two primary implications - 1. The bid/ask spread (the current buy price and sale price) will be wide, which means you are immediately taking a loss on the purchase - 2. because there is not a lot of activity, you could influence the price of the security by simply placing a trade (for example, if you sell your shares, the share price may immediately drop because people believe you know something they don't, and you end up taking a large loss)
-the company most likely does not have much value - take the number of outstanding shares and multiply it by the market price. You will get the Market Capitalization (cap) of the company. Compare this to other stocks, and you'll see quite a difference. It's a lot easier for a company valued at $2 million to go under than one valued at $15 billion (often considered a large-cap stock).
-as another note, most brokerage houses consider them so risky that they won't even trade Penny Stocks for most clients because of the liability involved.
-there are more reasons that make them risk, but time does not permit.
All that being said, there are huge gains to be had by investing in Penny Stocks, however, you also stand to take on huge losses. If its mad money/through-away money, feel free to play around.
If you're saving for retirement, college educations, new house, etc., I wouldn't even consider them options. |
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| CapM |
| Posted: Wed Feb 23, 2005 4:33 pm Post subject: Response |
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Investing Associate
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Penny Stocks (some define as under $1 market price, some say under $5) are VERY risky investments.
General rule of thumb = Don't Do It
These companies go under all the time and unless you are willing to do an extensive analysis of their underlying fundamentals, business plan, industry, etc., and most importantly, you know how to perform these types of analyses, you are dealing with disaster.
Take Kmart as an example. Kmart's shares fell into the Penny Stock range, and it was pulled off the exchanges. A lot of people thought, "hey, Kmart can't go under. I'll buy shares now, while the price is low, and it will eventually bounce back." But wait, Kmart did recover, didn't it? Well, it did recover, after it cancelled out ALL of its old shares when it reorganized. All those people that thought Kmart was going to "bounce back" lost all their investment. Now that was Kmart. What about all the other companies tht nobody has ever heard of? See the risk?
There are a bunch of items that make Penny Stocks risky
- they trade OTC (over the counter) and not on a listed exchange. The NYSE, for example, has rules and requirements that companies must follow in order to be listed. A penny stock does not have to follow them.
-they are "thinly traded" - which means that there are not many people out there buying and selling these investments. This has two primary implications - 1. The bid/ask spread (the current buy price and sale price) will be wide, which means you are immediately taking a loss on the purchase - 2. because there is not a lot of activity, you could influence the price of the security by simply placing a trade (for example, if you sell your shares, the share price may immediately drop because people believe you know something they don't, and you end up taking a large loss)
-the company most likely does not have much value - take the number of outstanding shares and multiply it by the market price. You will get the Market Capitalization (cap) of the company. Compare this to other stocks, and you'll see quite a difference. It's a lot easier for a company valued at $2 million to go under than one valued at $15 billion (often considered a large-cap stock).
-as another note, most brokerage houses consider them so risky that they won't even trade Penny Stocks for most clients because of the liability involved.
-there are more reasons that make them risk, but time does not permit.
All that being said, there are huge gains to be had by investing in Penny Stocks, however, you also stand to take on huge losses. If its mad money/through-away money, feel free to play around.
If you're saving for retirement, college educations, new house, etc., I wouldn't even consider them options. |
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