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Money, Finances, Stocks, Bonds, & Investments. A discussion on Money, Finances, Stocks, Bonds, & Investments.

Could you watch your stock holdings decline 50%?


Money, Finances, Stocks, Bonds, & Investments.

A discussion on Money, Finances, Stocks, Bonds, & Investments.
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Old 07-05-2012, 11:31 AM
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I think penny stock investing is a horrible idea. I have invested in penny stocks but only a small investment just to speculate. I would never recommend anyone to invest all or most of their capital on these types of stocks.

First of all they are penny stocks for a reason. They are so thinly traded compared to a blue chip company which means a much higher bid ask spread. So for some penny stocks you may need a 10% or more gain just to break even and that is before transaction costs. This is higher than the average stock market historical performance of around 9%.

You run the risk of losing your entire investment because these companies are very weak in terms of financial strength. They usually aren't well capitalized and often are very start up type companies.

There is risk of other investors exploiting the thinly traded nature of the stock and distorting the market by inflating the share price and the selling when price rises. This is called a pump and dump scam. People will buy stock and make up lies about company to get other people to buy. When stock price goes up they dump their shares and the stock plummets because of artificial demand.

Sure you may get lucky and find that biotech company that has a drug approved by FDA and price skyrockets but I can assure you 9 times out of 10 you are investing in duds.

Just my two cents. I work in the industry and have a finance degree do I know a few things about investing. I personally buy strong companies that have been around forever. Im not trying to get rich overnight and plan to slowly build capital base.
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Old 07-05-2012, 02:21 PM
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I personally buy strong companies that have been around forever. Im not trying to get rich overnight and plan to slowly build capital base.
How should small business owners go about finding strong companies to invest in and how long should they hold their investments without touching them?
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