Penny Stock Pitfalls
The stock market typically gains in value. The average rate of return for the past 60 years is about 10% With a total value of over $31 trillion, the stock market certainly isnt going anywhere any time soon. Although experiencing great gains, even accounting for recessions, depressions and other setbacks, the stock market as a whole is still outperformed by the small cap section. This section, also known colloquially as penny stocks tends to experience much greater average growth than exchange traded stocks.
Unfortunately, making big money in penny stocks is not simply a matter of choosing the best penny stocks to buy and riding them to the top. Penny stocks, in addition to their great potential for growth also have a great potential for failure. For every Apple there is an Enron. Unfortunately it is not always easy to determine whether youve got a winner or a loser.
Furthermore, even stocks that are mediocre and are not necessarily great winners or losers can experience great volatility or swings in price. And, these swings in price are not always a simple natural result of the ebb and flow of the world economy. Sometimes, they are deliberately initiated by pumpers or investors that put high pressure advertising schemes to the front of their businesses to make a stock appear more valuable. Then, they actually buy huge numbers of shares in hopes that the stock will look like the next Sony. Other hapless investors are lured in. The stock begins to plateau, the initial investors sell out. Maybe they even print a press release detailing the fact that the whole price rise was a fraud (and then short sell).
The stock drops like a lead brick and investors scramble to get out. Unfortunately, the lack of liquidity means that for some, this will be impossible.
Category: Penny Stock Tips
