Penny Stock Myths Busted

Tuesday, April 28, 2015

Penny Stock Myths Busted

The popularity of trading penny stocks has gone up in recent years but they still have a bad reputation due to many market manipulators. Despite their popularity there are still many misconceptions and myths circling them. Your only obligation to your money as an investor is to get educated on every aspect of the stocks you decide to buy.

It’s Money down the Drain

The reason companies issue stocks because they need to raise money. Some companies do this in order to pay off a debt while others are newly founded or need funding to release a new product. Any kind of investment is risky because you never know all the factors that might influence the growth of a company.

The first thing you’ll need to do is proper research on penny stocks; what they are, how they work by looking for reliable and helpful information online. Next you’ll need to find promising companies that are likely to increase their net worth. You should research markets that might have an influence on their success, their goals, services or products and even check if their team is motivated.

Penny Stocks Are All Scams

In a lot of cases a company issues penny stocks because they are a new company looking to break through in the market. There are many people who will stoop to scams in order to increase their income and this will never change but if you pay attention to the tell-tale signs you will easily perceive them. First direct your attention to their financial statement so if they have little money and a negative net worth it’s best to skip that investment. Many will advertise via emails or give insider tips into a great new investment but before you invest check out financial reports, their competitors and if the market corresponds with this claim.

Follow the Herd

Beginners will often make the mistake of selling or buying stocks based on the actions of the many. With penny stocks this can be a grave mistake because they rise and fall unpredictably, so you could find yourself in a position where you sold your stocks only to have them rise exponentially after a few months. Also, many stockholders are influenced by the pump and dump tactic so never base your decisions on the actions of others.

Brokers Know Good Stocks

Many believe that stock brokers know how to find good stocks. While some tips may come in handy since their opinions are founded on experience and they are also very educated, the fact they are in the industry may be crippling. Keep in mind that brokers make their money by doing transactions and not by analysing stocks. 

Interesting Companies Make Money

Investors often skip boring companies because they think they will never make a profit. Then when companies doing waste disposal start increasing their stock value investors buy up all the stocks. If these companies issued penny stocks your stock value could have increased by 600%, so never skip mundane looking companies just because they don’t have appeal.

Not Enough Liquidity

Liquidity is a term that describes how easy it is to buy and sell stocks. Since many are under the misconception that there aren’t enough investors interested in handling penny stocks they pass on great investment opportunities. It’s easy enough to understand that a company that has 10 shares has low liquidity, while a company whose stocks are experiencing many trades a day has high liquidity. 

About the Author-

Laura Hollington is a proud parent of three, two girls and one boy. As a small business owner she's tackled the trifles of business and managed to juggle being a mother and a boss. You can check out more of her writing on BizzmarkBlog, also follow her on Twitter.

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