This is a question that must be addressed and before we get into why we will spoil the surprise by revealing the answer first: ABSOLUTELY NOT! NEVER INVEST IN PENNY STOCKS. Said another way, investing in penny stocks is like trying to turn a hooker into a housewife, it just shouldn’t be done.
We don’t care how legitimate the company may appear to be, if its a penny stock it is meant to be traded only. Penny stocks are penny stocks for a reason, because they are worthless. The only thing that causes them to rise are stock promotions or attractive news releases. Even then though, the rises are typically short lived (a few weeks at the most, anything more is very rare).
The worst thing that could happen to you is you “invest” in a penny stock and it actually goes up. Why is that a bad thing? Because such an occurrence will trick you into thinking “investing” in penny stocks is a successful strategy to make profits. No, instead a much more successful strategy is to day trade penny stocks or swing trade them over a few days time. Penny stocks can drop 50% in a matter of hours, if not minutes, and if you’re buying them and then leaving for work, you’re putting yourself in a dangerous situation.
If your broker does not allow you to place stop loss orders on penny stocks (many do not), then you cannot leave the computer when you are playing them. That is the simple, cold, hard truth! Don’t do it! You’re asking for trouble if you do. Just ask anyone who bought NSRS around $1.70 the same day it tumbled nearly 60% to $0.70. Or the people who bought AMWI around $1.30 the same day it tumbled 80% into the $0.20′s. Yes, these moves really did happen the same exact day, so if you were not by a computer or you didn’t have a stop loss in place there was absolutely nothing you could do about it.
How could people ever be caught in a situation like the one just described in the first place? Because they fall for the hype. They get an email that talks about how stock XYZ is going to the moon and the promoter sites all these examples of previous stocks that made big runs and the reader falls for the trick.
That’s why whenever we get paid to feature a stock in a watchlist or dedicated email we never even talk about the “fundamentals” behind the company really. We strictly focus on the chart and whatever the recent news might be. We’re not going to insult our members by pretending any of these penny stocks have a chance in the long run because the bottom line is most simply do not. It isn’t these penny stock companies fault necessarily, it’s just the way the system has evolved.
Take companies like Groupon (GRPN), Pandora (P), Zynga (ZNGA), or Linkedin (LNKD) for example. These are all companies that a few decades ago might have initially started out trading as penny stocks, like Microsoft (MSFT) did in the 1970′s (you could have bought shares back then for $0.20). However, today when a promising start up like the aforementioned companies comes along, the big boys take over and never let it go the penny stock route.
There’s simply too much money to be made for banks like Goldman Sachs (GS) and Morgan Stanley (MS) from having companies like GRPN & LNKD do IPO’s as opposed to be being penny stocks. That’s why if you see a penny stock company that appears to good to be true it probably is. Because if it wasn’t, it wouldn’t be a penny stock in the first place.
So just remember, do not waste your time or money investing in penny stocks. The results can be prosperous in some instances, but over the long run it will likely result in major losses. Instead, spend time understanding the ins and outs of short term trading by visiting our Trading University link and watching all of our helpful trading video’s. We also have a chat room that is open 24 hours a day and we hold class room style sessions in chat during the evening, all of which focus on mastering short term trading techniques.
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