Navigating Penny Stocks
The stock market can be a tricky ocean to navigate. Intrepid adventurers, keen to make their fortunes in a distant land, often fall victim to the storms, reefs and unseen maelstroms that are recessions, scams and pump and dump schemes. Which course should a beginning investor set? Going long is a safe option. But, like a sailor who stays close to shore, safety often means a reduction in profits. It takes time to go the long way around, and cutting across the open sea is the route often chosen by more daring investors.
The open, uncharted waters of options trading, stock shorting, and penny stocks have the potential to shipwreck any investor who is not a skilled navigator and vigilant helmsman. Tools for analyzing stocks exist, but most of the foresight will come in the form of hard work. Poring over business reports and other charts will yield the data needed to set a course to financial gain.
But for some markets, the waters truly are uncharted. Penny stocks often trade over the counter or on pink sheets. Such stocks are not required to extensively report to the SEC their profits (if any) or losses. There, there be monsters. With no ability to accurately chart a course (for there are no charts), means an investor will often be traveling blind. This lack of regulation means that sharks set up schemes to artificially inflate the price of a stock, building up a frenzy of interest and false demand. Unaware investors sail in, sending the price of the skyrocketing. Because the true value of the company is nearly always shrouded in a fog, it is nearly impossible to tell that the stock is overvalued until it is too late.
Eventually, the investors that inflated the stocks value sell their shares en masse, and the stock capsizes. As the price sinks, the rest of the investors panic and jump overboard, this creates a frenzy to get out as fervent as the one that sent them in, and the stock hits rock bottom.
Category: Penny Stocks
