If You are Thinking of Buying Penny Stocks, Here are a Few Things You Should Know

Perhaps you are new to the idea of buying stacks and shares, have a few extra dollars, and are looking to see how to make your money grow. The price of shares for companies like Microsoft is too high for your budget, so what can you invest in?

Penny stocks could be what you want. They are cheap shares, sold at between $1 and $5. You won’t find them listed in the S&P 500 or NASDAQ, so how do you know what companies are selling shares at these prices? If you go to the reference section of your local library you will find a copy of Walker’s Manual of Penny Stocks. This manual lists 500 companies which sell share at these low prices. However, you cannot reasonably expect to get rich quick by buying these stocks. Some companies, such as &-Eleven began by being penny stock companies, so you can make money in this way, but it will take time and you have to do some research and have a little, or a lot, of luck.

You can buy these shares over the counter, on the OTC market. Prices are quoted in the OTC system for example on the OTC Bulletin Board or in the pink sheets. Before buying any penny shares, you should check that the companies are registered with the US Securities and Exchange Commission (SEC). One problem with buying these stocks is that the companies are too small to file their financial reports with the SEC, so sometimes the only information available is false. The fact that there is no reliable information and no minimum listing standards, are deterrents to buying this kind of stock.

However, you should do some research into the companies, for example, what exactly do they do? Do they make products or are they a service industry? Are they involved in manufacturing are they an environmentally friendly company? How viable is the product they make? Would you want to buy it, or do you think it would be popular?

The best thing to do would be to seek advice from a financial advisor before investing money in penny stocks. If you don’t particularly want to do that, the next best advice is to only invest what you can afford to lose. This is true of whatever company you invest in. There is no guarantee that shares will increase in value, and every chance that they will in fact depreciate, so think before you invest.