Introduction To Penny Stock Investing
Penny stock investing (also know as small cap and micro cap investing) can be both exciting and fun. What makes these low-priced securities exciting is the opportunity to take a small amount of capital, invest it in a company with an innovative business plan, and reap a large reward.
Generally speaking, a penny stock is one that trades under a dollar, though you will find some people who’d say a penny stock can be priced as high as $5. I, however, like to invest in penny stocks priced much lower – say under $.50. There are two exchanges you’ll find these stocks trading. The first is the OTC: BB, or the Over The Counter Bulletin Board. The second is the Pink Sheets.
Stocks trading on the OTC: BB are required by the Securities and Exchange Commission (SEC) to file audited financial quarterly reports with the commission along with annual reports. There are other filing requirements as well. The filing of these reports is required so penny stock investors may have legitimate information available to them before making an investment decision.
Stocks trading on the Pink Sheets may or may not be required to file such reports according to how many investors a particular company may have holding their shares. Companies on the ‘pinks’ with 300 or more investors are required to submit filings to the SEC very much like securities trading on the OTC: BB. The Pink Sheets are named as such because in the days before online trading became the preferred method of buying and selling, brokers dealing in these stocks would receive bulky paper (pink paper) lists that were updated weekly. This is how the broker would reference a stock if a customer was seeking information on a listed company.
The psychology involved in the penny markets is that of receiving a great return for a small investment – and that psychology is powerful. There are many great success stories associated with the penny markets. MCI, Pet Smart, Jenny Craig, and 7-Eleven are all companies that started out trading as penny stocks. However, when it comes to making it big, these companies are the exception rather than the rule.
Still, there is a lot of really great money to be made with penny stock investing. And here’s a secret about making money with the pennies: virtually all stocks follow predictable patterns. It’s up to the penny trader to learn to recognize these patterns and learn to capitalize on them. Good Luck!
