penny stocks

5 Reasons to Stay Away From Penny Stocks

Dr Penny Pincher — Mon, 04 Jul 2016 10:00:04 +0000

Penny stocks are inexpensive equities trading for as little as pennies per share. Because they do not meet rigorous financial reporting requirements, you won't find these stocks listed on the NYSE or NASDAQ. Instead, they're traded on the over-the-counter market rather than the stock exchanges where more reputable stocks are found. You've probably heard stories about people getting rich from penny stocks, but consider these reasons to stay away. (See also: Are You Making the Biggest Investment Risk of All?)

1. You Don't Know What You Are Buying

When I look at buying something that is really cheap, my first question is, "Why is that so inexpensive?" Most penny stock is in companies with few or no assets. It's also hard to know what you are getting, since the financial reporting requirements are less rigorous than for other stocks. Without audited financial reports, it is easy to be misled as an investor and buy stock in a company that is basically worthless.

2. Penny Stocks Can Be Difficult to Sell

A big consideration for any investment is your exit strategy — how will you get your cash out? Since penny stocks are not traded on stock exchanges, it can be difficult to find a buyer when you want to sell. There are just not that many investors looking for stock in companies with low asset value and less than standard financial documentation.

3. Penny Stock Scams and Fraud

Penny stocks are often associated with scams and "pump and dump" schemes. Some penny stock investors will buy lots of shares of worthless stock, promote it through mass email as the next "hot stock," and then sell it when the stock price peaks. The stock price then goes back down and everyone who thought they were buying a hot stock is left with a loss and a stock that is hard to sell.

4. Like Day Trading, But Worse

Many people who invest in penny stocks are not investing based on the value of the business, but are trying to make money from the volatility of penny stocks — buying a stock when the price is moving up, and selling it within a few days before the price goes back down. But you know that trying to time the market is always risky. Doing this with penny stocks is even riskier than with other assets, since limited financial information is available.

5. You Will Likely Lose Money

Since penny stock companies have low asset value, there is significant risk that the company could go bankrupt and leave you with worthless stock. A buy and hold strategy for penny stocks may leave you with zero value instead of growth in the stock price. Even if you don't plan to hold a penny stock for long, you are most likely to notice a penny stock while it is "hot," meaning you are buying near the peak price and will probably lose money by the time you can sell it.

Have you ever been burned playing with penny stocks?

This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Worst Investments You Can Make

Xin Lu — Thu, 01 Sep 2011 10:24:11 +0000

Generally, people love to talk about the best investments they have ever made, but we rarely hear about others talk about the worst investments they made. Good investments are those that maintain your principal and give you a positive return with time. The worst investments are those that burn through your principal and then continually pull money out of you without giving any return. The following are some of what I consider to be the worst investments. (See also: 7 Common Investing Mistakes)

Timeshares

Timeshares are set up by developers and hotel conglomerates to sell shared interest in their properties. They usually give great presentations where you can get a free stay at the property, and then they will try to sell you the right to use the property for a portion of the year. There is nothing wrong with this business model, but those who buy a timeshare directly from a developer should know that it is a terrible investment. First of all, the resale value of a timeshare is almost always lower than its original price. It's possible to find secondhand timeshares for 50% of the developer's price or even less on the resale market. Next, timeshares have maintenance fees that could be thousands of dollars every year. So if your intention for buying a timeshare is vacationing, it might be cheaper to just pay for the vacation yourself. If you don't use your timeshare for vacationing every year, then the money will be wasted. It is possible to rent out your deeded timeshares, but usually it is difficult to find a renter just for your time slot, and it's tough to recover all the fees you have to pay.

Penny Stocks

Penny stocks are stocks that are priced under $1 per share. They are usually at that price for a reason. The prices of these stocks are generally easier to manipulate because trade volumes are low. This is why there are many sites and marketers that promote penny stocks. If they get enough of a following, they can change the price of a stock on the open market and make it seem like it is easy money. The truth is that the promoters of the penny stock websites and mailing lists are the ones making the real money. There are legitimate penny stocks out there that appreciate suddenly, but to actually find them consistently can be difficult.

Badly Chosen Higher "Education"

It is often said that higher education is an investment in your future. However, there are many institutions of "education" out there that are nothing more than degree mills. Many of these schools accept nearly everyone who applies and leave the students with a pile of debt and low chances of employment in this competitive world. Recently there were several cases of students suing their alma maters after they graduated and were unable to find employment. I think more people should treat higher education as a financial decision and calculate the potential return before financing it with a huge student loan. It is fairly easy to look up the reputation of a school and the expected pay for your intended profession. If you do not choose carefully, then education funded by student loans might be the worst investment you could make, because student loans are not dischargeable.

Investments You Don't Understand

Many investments can be the worst investment you ever make if you don't do your research. For example, some investment products have fees and surrender charges that you need to clarify before you buy in. There are also investments such as rental properties or a small businesses that require you to put work into them to keep their existing yields. The bottom line is that you should get as much information as possible before putting any money down.

What are the worst investments you have ever made? Have you put money into any of the above and regretted it?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Womanhood microscopic and other hot stock tips

Andrea Karim — Wed, 07 Feb 2007 19:03:12 +0000

One of my favorite things about getting spam is... wait. I don't have a favorite thing.

The most irritating and difficult spam emails to catch are the newer generation spam, the ones that contain a sort of mangled embedded image instead of just plain ol' words. Or, they come with really bizarre, randomly generated passages or simply copyrighted material stolen from a legit web site — you know, like this:

I get hundreds of these per day (you probably do, too), and they are all attempts to get me to purchase penny stocks. Penny stocks are cheap stocks from risky companies, basically. They trade on the OTCBB rather than on a reputable exchange like the NASDAQ or the NYSE, and are the kinds of stocks that the guys in The Boiler Room try to sell over the phone. From About.com:

"Penny stocks are a special category of low priced, usually $1 or less, stocks often issued by highly speculative companies. They are frequently the focus of stock scams and manipulations."

There are lots of people out there who want you to buy penny stocks — usually not the people who work for the company that has issued the stock. Basically, the scheme is this: A day trader with shifty eyes and a heart of tar buys up thousands of penny stocks in a company. They then hype the company in some fashion, convincing other people to buy the stock as well. Then they sell. Buy low, sell high — super easy, you've heard it all before, right? They dump the stock, they make a few dozen cents per stock, which, mulitplied by thousands, adds up to a hefty sum over the course of a few succesful scams.

The stock hyping is done, these days, via email — that's right, those awesome spam messages that clutter your inbox like electronic cholestorol in your virtual arteries.

Spam probably wouldn't be sent out if there wasn't some kind of return on it, right? Which means that there are people out there who click the links to buy cheap, possibly fake Cialis and people who go and buy penny stocks based on advice from an email that landed in their junk folder. It means, in essence, that there are still suckers out there who think that they can get rich quick by purchasing these "hot stocks." And it means that the people who send the penny stock emails are actually making money from them. The scam works.

When I first read about penny stock spam scams, my first thought was, "Bastards! You stinking bastards! How dare you try to take advantage of people like that?" My second thought, which quickly followed the first, was "What kind of idiot would actually buy stock on advice that came in an email with the subject heading Hi lsljjfcmkijanucgwopt? They deserve to lose everything." My third thought was, "How can I scam people into buying penny stocks?"

Well, other people have, of course, beat me to the punch. Joshua Cyr, a weblebrity, starting hypothetically trading the stocks and posting the information on his website in May of 2005. Joshua has continued the experiment to see just how much he could make using the tips contained in the stock spam. His net profit as of 2007? -$60K. I'll spell it out just in case you miss the little minus sign: NEGATIVE sixty-thousand dollars.

I, fortunately, was hampered by the lack of actual cash with which to purchase stocks, and the lack of imagination to simply track the stocks AS IF I had actually invested in them. But people do follow spam advice, do buy these stocks, do make the spammer rich and fat and well-suited in navy blue pinstripe suits, and consequently, do lose thousands and thousands of dollars overnight when the spammers dump their stock for profit.

Now, short of joining a boiler room team (I DO look great in pinstripes, though) and trying to bilk poor schmucks out of their hard-earned 401K dollars, I can't see a good way to get rich on penny stocks. I'm sure most Wise Bread readers aren't about to go out and start buying them en masse. But you probably know someone who is stupid enough to consider doing it. I know I do.

It's your job, Dear Reader with Functioning Brain Cells, to prevent your stupid friends and family from letting spam scammers get rich. It's like the War on Drugs, except that it makes sense, and it might actually work — I'm calling it the War on Greed and Stupidity. It starts now.

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: