Wednesday, December 17, 2014

Why Its So Important To Have A Clear Understanding Of All The Different Types Of Penny Stocks'


                                

This is the most common problem with the term penny stock. The definition can be used in a very broad way. Investors in penny stocks and low single digit stocks should keep this in mind all the time. If we are talking about stocks that trade below 1 dollar. We are most likely referring to stocks that trade on the pink sheets or the over the counter bulletin board. Although their are stocks that trade on the nasdaq that trade under 1 dollar for the most part penny stocks that stocks below 1 dollar are going to trade on the pink sheets or the over the counter bulletin board. The quality of penny stocks trading on the pink sheets and the over the counter bulletin board is usually terrible the reason is usually because these stocks do not meet the rigid listing requirements to listed on the nasdaq or the new york stock exchange. As I  have said in a previous post the lower the price of a stock the higher the risk. The ideal penny stock or low single digit stock would be a company that has earnings growing sales on a annual basis the company has clearly established its products or services in the market place the company has been in business for a very long time say 20 years or longer What you  really want to look for in a penny stock or low single digit stock is a company that looks more like a 20 or 30 dollar stock trading on the new york stock exchange than like a 2 dollar stock. Getting back to penny stocks that trade on the pink sheets or the over the counter bulletin board. Many of the companies of these stocks are developmental stage companies they have limted sales  narrow product lines they usually  have a very high failure rate. They have not been in business very long in many cases less than 5 years in many cases. Their products or services have not been around for that long they clearly have not been well established in the market place. Would you rather invest your money in  the company of a 2 dollar stock that has  been selling their products in walgreens stores for over 20 years or in a 2 dollar stock of a  young unestablished company that is in the process of introducing their products to a walgreens purchasing manager. A product or service that has not withstood the test of time is almost always high risk.. One other thing to keep in mind when venturing into stocks trading on the pink shhets or the over the counter bulletin board. Because the companies of stocks trading on the pink sheets and  the over the counter bulletin board are so poorly regulated this is great territory for pump and dumpsters and fraudsters alike. On rare occasions theirs an exception to the rule when the stock of a company trading on the pink sheets or the over the counter bulliten board can be a good investment but very seldom.





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4 comments:

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