I could write the chapter on penny stocks with one word, DON’T !Â I promise you this chapter will be very short LOL !
From the SEC’s website: The term penny stockâ‚¬Â generally refers to low-priced (below $5), speculative securities of very small companies.Â I don’t want you to ever, ever even consider buying a penny stock. Never. They are basically unregulated and highly manipulated.
I know you’ve heard the term “pump and dump.” This is where it originated from, penny stocks. Now I will have to say there are some well known companies out there that at one time traded for less than $5 but there are a ton of stocks out there that trade on the “pink sheets” and some are literally traded in fractions of a penny. I know this because I once owned a quarter of a million shares (250,000) in a company that made a virtual keyboard. The way this thing worked was you sat a little module about the size of a Bic lighter near your laptop and it projected a full size virtual keyboard onto your desk. Well, I thought this was gonna be the best thing since they put handles on a slop bucket (it’s a Southern thing) so I bought 50,000 shares for about 1 cent each. I talked to the company President on the phone, I talked to the lady that handled investor relations, I knew every move this company made concerning their new technology or so I thought. Then one day they issued a statement saying the release of the virtual keyboard had been pushed back due to production problems overseas.
The price of the stock fell to something like 0.0010. Yeah, no shit LOL ! I wasn’t really sure how to enter that on my calculator but I bought more shares. I had already played it out in my head.. this thing would hit the market, IBM or Microsoft would buy it and the stock would go to $10 and I’d be a multi millionaire. And I really, really believed that. Well, I held onto the stock for a long time and every so often the company would release a statement about the progress of this keyboard and the price would move up and down in fractions of a penny. And then one day it happened. The company released a statement saying they planned to unveil this virtual keyboard at the CES in Las Vegas. The CES stands for Consumer Electronics Show and that’s where all the tech companies show off their latest and greatest inventions. The stock jumped up a little bit and I actually had a small profit for a little while. Holy cow, I had hit the freakin’ jackpot on this one ! I owned a quarter of a million shares of a company that had developed some cutting edge technology and I was about to get rich.
Then something strange happened. I opened my trading platform one morning and my stock now had a Q added to the end of it? One day it was XYZ and the next day it was XYZ.Q. Huh ? And then I noticed there was an e mail in my trading account inbox. I read it and then I learned what the Q meant; when a company goes into bankruptcy proceedings a Q is added to the symbol. My stock was now worth $0.00. I felt like a hooker who just got screwed by a platoon of Marines but didn’t get paid. Someone filed a class action lawsuit against the company and a few years later I got a check for $32. I don’t think the keyboard was ever produced.
So, what did we learn here ? We learned that you never, ever under any circumstance whatsoever buy a penny stock that is listed on the pink sheets. If you even have a dream that you thought about buying a penny stock you should get up the next morning and slap yourself. Personally, I don’t buy stocks under $20 unless they are a very, very well known company with a long history and proven track record.
I would like for you to read this article on Wikipedia about penny stocks. It is my hope that my personal experience and the information provided in the article will convince you to NEVER, EVER even look at penny stocks.