Strange Answers To The Question: What Is A Penny Stock?
Do You REALLY Know What A Penny Stock Is?
What is a penny stock? I get the question all the time and at the start of the New Year, we always have a ton of new subscribers join our newsletter.
When I last checked a few hours ago, we had 3,073 new subscribers!
Let me first say welcome to everyone new!
Now the truth of the matter is, everyone here is interested in trading and investing in penny stocks but theres an argument in the industry over what a penny stock really is!
Do you know?
Believe it or not, there is no true definition of a penny stock. So it can be whatever you want!
Everyone looks at it a little differently. For example
The Classic View Of What A Penny Stock Is
The classic or traditional view is simple a penny stock is a stock that trades for pennies a share
Technically, since pennies make up a dollar, you could argue all stocks are penny stocks because they can be quoted in pennies but thats slicing hairs here!
In reality, any stock below $1.00 a share is seen as a penny stock.
Does it really impact anything?
Well, yes it does.
Ive heard of some brokers not allowing customers to trade penny stocks that trade below $1.00 because they deem them too risky.
All Ive got to say is thats a load of crap.
During the Great Recession in 2008 2009, there were tons of companies who saw their stock price plummet to the penny stock range. If you werent able to buy them then, you missed out on huge returns!
Just look at Pier 1 Imports (PIR).
They sell home goods from retail stores back in 2009, you could scoop up shares for about $0.10 they were truly a penny stock!
Its an incredible rebound they had investors who scooped up those shares made a mint!
So, the moral of this story is if your penny stock broker wont let you trade penny stocks find a new broker.
But thats not the only kind of penny stock out there.
Nope.
The Governments Take On What Is A Penny Stock
The governments always sticking its nose into everything and penny stock classifications are no different.
The government says on their website (sec.gov) that a penny stock is a security issued by a very small company that trades at less than $5 per share.
Well, now we have a new term very small company.
Is a small company a microcap stock?
What is a very small company and if their stock sells for $100 a share, is it still a penny stock?
But now heres where it gets weird
The government goes on to say, In addition, the definition of penny stock can include the securities of certain private companies with no active trading market.
In other words, a private company can have a penny stock even if there is no active market think about this if theres no active market, how do you know what price the stocks trading for?
So how do you know its a penny stock?
If you ask me, they seem to muddy the water more then give clarity classic government!
So what do I think?
The Penny Stock Research Take On What Is A Penny Stock
Heres how I look at it
For trading purposes, a penny stock is anything below $10 a share
Strange, right?
Well heres my thinking
First, when you buy stock, you normally buy it in round lots or 100 shares each. So at $10 bucks or less, 100 shares will cost you a $1,000 or less. The cheaper the stock price, the more shares you can buy.
Second, many companies under $10 are smaller, and that means bigger growth. Small companies have a long history of outperforming the markets because of their growth potential and thats what Im after.
Third, many tier one markets like the NYSE and NASDAQ actually discourage the pricing of shares in pennies thats right if a stock price falls too low, the company can get kicked off the exchange!
So many companies who would have true penny stock prices (below $1) work to keep the price up through stock splits.
Look, at the end of the day, I dont care what the price of a penny stock is only that I make money from it
So regardless of whether you think a penny stock is $1, $5, or $10 just keep trading!
Now heres one last thought
Whats A Penny Stock Asia Edition
Im going to leave you with one last thought about penny stocks.
When I was doing deals in Asia, the mentality of the markets is entirely different. In Asia, the goal is not to have a high priced stock, but to make the stock easy to trade.
As a result, many companies actively worked to keep their stock prices under a few dollars a share!
Every time the stock price would march up and get over a few dollars, the management team would split the stock keeping the market price at just a few pennies.
This was especially popular in Singapore!
There was never a stigma about having a stock trade for a few pennies and the Asian governments arent warning investors about the risks of trading penny stocks!
So nows your chance you tell me what is a penny stock?
Please leave a comment on the website, or shoot us an email!
Good trading
Brian Kent
Penny Stock Research
Note: Brian Kent has been trading the markets for more than two decades and now writes and edits for PennyStockResearch.com. You can sign up for the penny stock research newsletter a trusted source for the truth about penny stocks! Sign up today and get a free research report – http://pennystockresearch.com/free-reports/.
Category: Penny Stock Tips
