Penny Stocks: the wild horses of investing. Everyone knows Warren Buffett is the world’s third and the US’s second richest man. Everyone also knows Buffett’s two golden rules of investment: Rule # 1 – never lose money, and Rule # 2 – never forget rule # 1. The same investment rules apply when investing in penny stocks too, though stock market data for penny stocks might be hard to come by. They are too volatile – which makes them attractive though – and most of them are not listed with the Securities and Exchange Commission (SEC), the watchdog of the stock exchanges.
Would Buffett invest in Penny Stocks? He’s too big for that now, but he made his first trade at age 11 when he bought a small cap for $ 38 a share. It was so volatile the price went down but Buffett held on. At the end of the day, he didn’t lose money: he sold for $40 a share, only to watch the price climb to $200 a share!
What are Penny Stocks?
Contrary to their nomenclature penny stocks are those valued below $ 5 a share, according to the SEC. They mostly trade at low prices outside the major exchanges. You probably won’t find stock market data for Penny Stocks because they have a small market and are highly speculative and risky, and can be the target of scammers. They are low on liquidity, small on capitalization and you might be stuck with them for lack of buyers.
Investing in Penny Stocks? Keep these things in mind. If you are not risk-averse then Penny Stocks are ideal for you. Being high on volatility, they can come up with higher rewards. The reverse is of course also true, since stock market data for Penny Stocks may not be available for your particular share. In every case don’t forget to set a stop-loss option before investing to enable your exit an unfriendly market. Do not imagine making money overnight on penny stocks. These companies are usually small concerns with low cash and resources vying for growth, which not happen. Also, search for listed ones and as far as possible avoid the OTC – over-the-counter – stocks.
Are Penny Stocks traded on major exchanges?
Mostly not. Stock market data for Penny Stocks are largely unavailable because many of these small companies are not listed. However, some are to be found in NASDAQ and NYSE. For example, Star Surgical Co, Magical Security Systems Ltd, and Ballard Power Systems to name a few. Another trick is to buy penny stocks while they are doing well, buying only those with high volumes of 100,000 and over. A gain of 20 % to 30% should be good enough to sell. Most traders get greedy and lose out badly.
Are regulations in place for Penny Stocks?
Yes. Section 15(h) of the SEC Act, 1934 mandates that brokers dealing with Penny Stocks should adhere to requirements as under:
Besides written agreements between the firm and the investor, the company has to disclose risks, current market situation, and amount of compensation to be received by the firm and its brokers, related to Penny Stocks. The firm is also mandated with sending monthly financial statements on the stock value. Considering that stock market data for Penny Stocks being largely unavailable, these mandates assume great significance and prospective investors must take due notice.
In the Penny, Stock scenario don’t listen to the companies
Once you trust the companies you might in for a rude shock. Treat every business as unreliable and remember when you invest where stock market data for Penny Stocks is unavailable you might have landed in a scam. These may be just company promotions that aim to manipulate gullible investors. As soon as the owners get rich the investors are just dumped.
Finally, be cold and clinical when it comes to penny stocks
Penny stock companies are mostly dream merchants who want to sell exciting dreams to you. They may have their point but they may lack in solid agenda. If you find stock market data for Penny Stocks unavailable for that company, all the more reason for you not to fall in love with it.
Penny stocks have the potential to make you or break you. Be aware.
Regulations Covering Penny Stocks