Penny Stocks - The Little Known Truth About Penny Stocks And Why They Aren’t Good For Beginners
13th December 2010 by Tax Man No Comments
My friend called me yesterday and asked me questions about small cap stocks. He has some cash to invest and thinks that buying penny stocks promises the greatest profits. Here is what I told him.
I know that Adam (my buddy) is not the richest guy in the world. He and the wife will work hard for his or her money. Nevertheless they do very well. They have a little house, a car and no financial worries. It looks like to me that they are looking for some…
Before I share my stock market experience with anybody I always check the background from the the person who asks. You should know the main reasons why somebody really wants to buy stocks.
It doesn’t matter what kind of financial instrument you like, they are all risky. There isn’t any one-way street within the stock market. We all want quick money, but just don’t forget this: There is oncoming traffic around the fast track.
There’s a lot of this traffic in penny stock lists. People make the mistake to check out the price only. Because it looks cheap does not necessarily mean it is. Actually, small cap stocks are the most high-priced stocks available. Why?
A few couple of reasons for that. First, penny stock investing companies usually do not have any stable financial basis nor a reliable company history or outlook. For this reason they are penny stock lists. This means high-risk. You also could have a difficult time for you to find reliable information for the research.
Second, trading stocks in which they trade is very illiquid compared to the normal market. You might get into a penny stock investing but you can not escape when you want. As a result of low volume the penny stock investing market may be easily manipulated. That is illegal but it happens almost every day. The stocks also have a much wider spread that you’ve to pay. What this means is higher trading costs.
Penny stock lists are great, aren’t getting me wrong. There are a few real gold nuggets on the market, just waiting to be discovered. However it is a market for experienced traders only. No exception.
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