Which Penny Stocks To Avoid

Penny stock is a stock that trades at a relatively low price and market cap, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.

There are many good penny stock investments available, which could turn a small amount of capital into a small fortune very quickly. However, to discover these you need to know what to look for and what to avoid. When searching for that one big payoff, steer clear of the following examples.

The Phone Salesman
Anyone who is attempting to sell you investments over the phone should be considered an enemy. They have high-pressure sales tactics, and effective, believable arguments. However, they are not doing you any favors, no matter how good they make an investment sound. They are operating in their best interest to dump over-the-counter stock on you, and the money you pay in will go into their own pockets, or the pockets of their company. There has never been a need for good companies that are going places to resort to these type of tactics, but there has always been a need for poor, sinking, or shady companies to do so. If you choose to ignore this advice you deserve what happens to your investment. You may also run into difficulty trying to find a buyer for your shares once you decide it is time to sell.

Very Low Volume Stocks

Without much trading activity it becomes increasingly difficult to buy or sell for the prices you want. As well, it becomes nearly impossible to get an understanding of where the stock price is heading, or to calculate fair valuations for the company’s stock price. Not only that, but companies subject to low trading volume generally do not have a lot of positive interest.

The Hot Tip Stock
There are actually professional promoters who make a living by spreading false rumors about some penny stock that is guaranteed to rise sharply. The idea here is to spread the rumor from person to person, at the office, over the phone, or at social venues. The promotional ploys can be very costly for investors who get involved without special knowledge about the company or the actions of the promoter. In most cases if a stock really is going through the roof you won’t hear a word about it, because a select few individuals will be very intent on keeping the information to themselves.

Guaranteed Performance
If a stock is guaranteed to go up, it will almost always go down. Nothing is ever certain, especially on the stock market. When someone guarantees certain performance out of a stock, they may be a promoter, naive investor, self-serving broker, or have heard the guarantee from another source. In any case, don’t believe them. Instead check into the company yourself and if you feel it is a good investment, you may want to proceed.

Sinking Ships
When a stock has dropped a lot you may think that, it wont go down any furthur. Especially with penny stocks, you need to avoid this type of thinking because many sinking ships don’t ever rebound, and they can go lower, and they aren’t good bargains just because they cost less than before.

Commission Free
If you are interested in getting stock commission free you may think you are saving money, but it generally means that you are buying over the counter stock directly from a promoter or the company. Either way, they take their own invisible commission from you, either by selling to you for an arbitrary amount which is unfairly high, or selling to you for the asking price rather than the bid price based on their own current valuations.

International Penny Stock
Penny stocks from Africa, Australia, European, Russian, or South American penny stock markets can be really a risky bet. The level of investor protection and exchange honesty in some of these regions is not upto the mark. Additionally the broker fees is really high for international penny stocks. Experts believe, if you can’t find good penny stock investments in North America, you won’t be able to find them anywhere else either.

Warrants and Rights
These are not technically stocks, but instead are derivative investments based on an underlying company’s shares. However, they often appear like penny stocks because they sometimes get listed in the stock pages, and often trade for pennies. It is unlikely that you will accidentally purchase derivatives, but make sure you know what you are trying to buy by understanding the listing criteria of the paper you are reading, or verifying your purchase with your broker.

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  • I think that most penny stocks are scams. When trading penny stocks, it’s important to realize that most are worthless. It doesn’t mean you cannot make money.

    You have to go into them realizing they are not investments and you have to sell when you realize the profit you want, because if you don’t, you will be left with nothing.

    I normally visit this

    Penny Stocks
    Site: http://www.surefirepennystocks.com to research.

    I know that in penny stocks, they move with good news, chatter online, and when price and volume breakout occurs, you hop in. When the momoentum slows down – GET OUT!