Penny Stocks might be the group of stocks that I get asked about most.

You see ads on Facebook, Twitter, and other social media telling you that you can "get rich" off of these "Penny Stocks".

So what's the deal?

Let's find out

"Penny Stocks"

A Thread

1.

First, what are Penny Stocks?

They are exactly what they sound like. These stocks trade for just a few cents per share.

Technically, a penny stock is defined as having a share price of less than $5 per share.

So what's the appeal with them?

2.

The appeal with penny stocks is two fold.

First, the share price is very low so people are able to buy massive quantities of shares at a time.

Second, they are very volatile. A price movement of a few pennies could mean 10%, 20%, or more.

3.

This combination of low cost plus high volatility gives a sort of "quick money" vibe - this is why you see these ads.

Have people gotten rich off of penny stocks? I'm sure some have.

HOWEVER, they are the exception and NOT the rule.

Why?

4.

Consider penny stocks from both an investing and trading standpoint.

From the investing side, penny stocks are very small companies that receive very little coverage from analysts.

They often have little media coverage, earnings estimates are sparse, etc.

5.

So if you are looking to invest in a penny stock company, you are essentially flying blind.

And knowing what you invest in - is the FIRST rule of successful investing.

Now let's look at it from a trading perspective.

6.

Penny stocks often trade on very low volume.

In other words, shares can be difficult to move.

This could be dangerous if you hold a large block of shares, and the price begins to plummet.

7.

Furthermore, this makes penny stocks vulnerable to manipulation.

A fraud can occur where someone creates a buying frenzy for shares with manipulation/misinformation, then suddenly selling their shares.

This is a "Pump and Dump" scheme.

8.

So for the average trader/investor, penny stocks represent a very risky proposition

That could easily wipe you out instead of making you rich.

And think about it - if these companies are anything worth looking at....

Why do they trade for pennies?

9.

You are MUCH better off focusing on quality stocks and companies

That will steadily increase in value over time.

Remember - if you can get rich quick.....you can go broke just as quickly.

Don't get wiped out chasing garbage

10.

That's it for today, folks!

Feel free to follow along @theefinanceguy

Please RT to save a friend from chasing penny stocks

DMs are open for anyone with questions!