May 12: The Exploration of Penny Stocks

by David Jenyns on May 12, 2007

Penny stocks, which only trade for $5.00 per share, are a high risk stock that most people are advised to avoid due to the fact that the companies that are selling this type of stock are either in great financial danger or on the verge of bankruptcy. Penny stocks tend to fluctuate rapidly in price but some penny stocks should a gain in days, possibly even in hours. So, basically, the decision to invest in penny stocks is strictly the choice of the investor because, according to statistics, you have more of a chance of losing money, but, there are those times when penny stocks seem to pay off rather quickly.

The main reason to buy a penny stock is because you hoping for a high return. Because they are cheap, most people are able to purchase quite a large number of penny stocks, thus, if you receive a high return on your investment, you will make a considerable amount of money. For example, you buy 100,000 penny stocks for at $0.10 each, which means you invested a total of $10,000. You decide to sell your penny stocks for $0.40 each, which means you just earned 4 times what you invested and gained a profit of $30,000. That is quite a return on your investment! Therefore, the key to purchasing penny stocks is get in and get ahead of other investors before they learn about the high returns that certain penny stocks are capable of producing.

In order to ensure that the penny stocks you are planning to buy virtually guarantee a high return of investment, be sure to look for companies in which their sales are steadily growing because this means that their profits are steadily rising, too. Also, invest in penny stocks only if the company has an honorable executive team in which expansion is one of their main priorities, that way, you can ensure that a certain company will stay in the stock market. With all these characteristics in place, a solid business foundation is established, therefore, an increase in the price per share of penny stocks is almost inevitably going to increase.

Another important aspect of penny stocks is to buy them when the company is new and in the early stages of business development, especially if you feel the company is going to have great success. Think about when Microsoft was just starting out and they sold penny stocks for $2.50 per share. What if you had bought 100 if those penny stocks? The money that you used to purchase your penny stocks was actually used by the Microsoft corporation to help them expand their business. Thus, due to the fact that Microsoft has exploded into a large, corporate entity, your penny stocks would probably be worth thousands.

With penny stocks, it is all about timing and the expansion of the business in which you purchase your stocks.

Please remember that penny stocks are a major high-risk investment, meaning that the chances of you earning a return on your investment are slim to none.

There are four main reasons for this high risk. First, information about companies who are selling penny stocks is hard to locate, and when information does arise, the sources are usually very unreliable. Penny stocks also do not fulfill the minimum requirements to remain the stock exchange. This is the reason penny stocks are offered by less reliable sources than the stock market, because such a large financial entity does not want the responsibility of liability. Because many of the companies who sell penny stocks are brand new companies, they do not have a history of investment in which an investor can review. Plus, penny stocks have no value, unless by chance the business becomes a large, expanded company that is able to issue a huge return on investment. Therefore, it is vitally important to review both the positives and negatives in the case of penny stocks before making the decision to purchase them.

Penny stocks offer the ultimate gamble when it comes to stock trading. Penny stocks are extremely cheap to purchase and they have a small chance of delivering an extremely high return on investment. But, more than likely, penny stocks simply are a high risk investment gamble in which you lose money.

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