About Penny Stocks and Whether to Add Them to You Investment Portfolio

What are Penny Stocks?

Penny stocks are shares that can be traded starting at any amount that is less than $5. If a company's total value or market capitalization is less than $10 million, it may be called a penny stock company.

Should Penny Stocks Be Added to An Investment Portfolio

They are usually riskier than average investments and if your portfolio and your investment strategy is risk aversion, you do not need to include penny stocks in your portfolio. Because they are much riskier than other investments, the reward potential is significant.

Some of these penny stocks have gone from $.25 cents to $30.00 while there are other penny stocks have become worthless. If you are in your twenties or thirties and have a longer time before retirement, you can stomach more risk and can therefore try your hand at investing in penny stocks compared to someone with less time until retirement who may be advised to make conservative investments.

A lot of investors like these investments because of the small cost related to trading in these investments. It is hard to invest in Walmart or Microsoft currently and make a significant profit. If you purchased Walmart stock in the seventies that you still hold, then your investment return currently is extremely significant.

There are plenty of small companies across the US that have the potential for significant growth in the future or that can crash and burn. You have the ability to turn a small investment into a fortune when you invest in these companies that significantly grow in the future. The downside is that you will lose your entire investment if the business does not succeed.

The downside of investing in penny stocks is the significant risk, the lack of corporate transparency in these startup companies as well as the volatility of the stocks.

At one point, all the major companies such as Walmart, Xerox, CocaCola, etc, used to be penny stocks and investors took a chance on these stocks and are reaping the benefits. As they grew, the stock price increased until the stockholders became multi-millionaires.

Additional Risks

1. Do not purchase any stocks that you heard about for free. Scammers usually use pump and dump techniques to swindle you out of money. They will tout a certain stock and have no supporting basis and once enough investors purchase the stock, they will usually disappear during the night with the investors' money.

2. If investors do not do their own research or how to trade in penny stocks.

3. Penny stocks may have low visibility and may not be easily traded.

If you take the time to perform proper research on the companies and learn how to trade in penny stocks, it will pay off in your investment portfolio for years to come because trading in penny stocks is a very rewarding and exciting investment opportunity.

If you take the time to learn how to find good companies that are offering penny stocks and take the time to understand the dangers and the ways to avoid them, you can be one of the next multimillionaires. The recession makes this an opportune time to make a change and look for viable opportunities for success. There shall not be an opportunity like this for many years so you need to take advantage.

Where Penny Stocks are traded

Penny stocks are usually traded on either the OTC-BB (over the counter bulletin confiture) or on the Pink Sheets. OTC markets can be part of the NASDAQ (National Association of Securities Dealers Automated Quotation), NYSE and Amex. OTC-BB combine national or regional and foreign equity warrants, units, issues, American Depository Receipts and Direct Participation Programs. OTC-BB and Pink Sheets allow for the quotation of prices for unlisted securities.

The OTC-BB and Pink Sheets usually host the majority of micro cap equities also known as penny stocks, and the majority of companies that are listed on these exchanges are under $5. The listing requirements, regulations and expenses are usually higher on the OTC-BB than on the Pink Sheets. This makes the companies listed on the OTC-BB of a greater caliber and less risky than those listed on Pink Sheets.

Speculators are usually attracted to penny stocks or micro cap equity because they are more volatile, have the potential to increase in value in a short amount of time, are usually easy to acquire with a minimal initial investment.

Conservative investors usually stay away from these investments because, the penny stock companies are usually less secure if they are recent startups, the prices are too volatile, no dividends are usually paid and are not usually subject to the same reporting standards as Blue Chip securities.

It is important to remember that high risk usually results in high reward and the reverse is true for low risk investments.

Penny Stock Helpful Resource

James Connelly, the Penny Stock Prophet has developed a unique formula that has made him a millionaire by investing in Penny Stocks. He is now offering some people the opportunity to trade alongside him. It's true - You can absolutely grow your income and improve your investment gains by getting more skilled and learning more about the business and James will show you how to pick penny stocks and lower your risk despite this being a highly risky and volatile area of investing in the Penny Stock Prophet program.