What Are Penny Stocks and Are They Worth Your Time?

Penny Stocks – everybody’s heard of them, few have ever bought or sold them, and most people don’t quite know what they are. For the greenest of green investors, Penny Stocks may sound like a great way to get into investing for people without a lot of money. And while that may be (partially) true, a Penny Stock is a strange beast, composing a market fraught with peril. Even though you don’t need a lot of capital to invest in Penny Stocks, only the strong will survive and thrive in this cheap and funky investment landscape. Read on to learn if Penny Stocks are for you, or if other approaches to investment will suit you better.

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So What is a Penny Stock?

Many people remember a famous scene in The Wolf of Wall Street when they think of Penny Stocks. A young drug-addled investing wunderkind (Leonardo DiCaprio) makes hundreds of thousands of dollars, charismatically selling Penny Stocks to dupes over the phone. But what are these stocks anyway?

Penny Stocks are just like stocks sold on the largest and most familiar stock exchanges, such as Motley Fool stock picks. But unlike those stocks, Penny Stocks don’t represent an investment in any company you’re likely to have heard of. Penny Stock companies are small, often representing the work of a single individual. Investment in Penny Stocks is highly speculative because companies like this won’t have a lot of history or momentum to back up your investment. A single stock will also cost more than a penny. Oftentimes, “Penny Stocks” refer to any company stock that costs less than $5 per share (although industry people sometimes refer to any stock that doesn’t get exchanged through the major markets as a “Penny Stock”).

Can You Make Money?

It’s easy to understand that because Penny Stocks are tied to small, unproven companies, that they require investors to carry a lot of risk. But is it possible to make money with Penny Stocks? Absolutely. But you have to be a certain kind of person.

As with any kind of stock investment, the most knowledgeable and hardworking people will tend to gain the most insight. Insight sometimes (not always) translates into better-than-average dividends. Because no one can predict the future, there is no guarantee that any investment will be profitable, but knowledge minimizes risk somewhat.

With Penny Stocks, as with more conventional stock market investment, it pays to know something about the companies you’re investing in. With small companies like these, you’re likely to have one advantage, especially if you’re the sleuthing type. The world’s most successful investors achieve their lofty heights by educating themselves about the companies they invest in, even going so far as to manage them and sit on their board of directors. You may not be in a position to go this far with a Penny Stock company (unless you buy up a controlling interest), but you may find it easy to communicate freely with that company’s CEO or other key figures.

Relationships like this can give you an insider’s knowledge about what makes your chosen company tick – that which is likely to make it succeed or fail. Because certain Penny Stocks do increase in value many times over, of course, it is possible to make money this way. But finding this edge requires the internal knowledge of the businesses (as we discussed), as well as knowledge about that company’s place in its industry, and plenty of luck. Training programs such as Penny Pro will teach you a winning strategy to really make the most of penny stocks.

Conclusion

So should you invest in Penny Stocks? That’s a decision only you can make. At the end of the day, Penny Stocks require the same kind of thought processes that conventional stock market investments do. While the price tag may be lower, so are the chances of success. So take part in Penny Stocks only if you are the kind of obsessive character who pore over internet forums, read industry market reports, contact obscure companies with pointed questions, and variously shepherd your pennies until they’ve grown into dollars. If you’re not committed and engaged, Penny Stocks are little more than a slot machine for people who can’t afford the flight to Vegas. For people who are willing to dig a little deeper than the average budget investor, Penny Stocks can actually make you some money.

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