Penny Stocks, the Road to Riches or Ruin

There is little or no information about these companies because they are newly formed or are simply shell companies with no assets. With no historical or financial record, it is difficult to know what you are buying into.
Penny stocks can be difficult to sell because of the limited interest by the market. Penny stocks usually have heavy trading during the promotion stage, but once the promoters and insiders have sold their stock, there is no continued promotion to attract new buyers.

Penny stocks are subject to "pump and dump" scams where promoters will engage in heavy promotion to get the price of the stock to rise. Traditionally, promoters would cold call as many individuals as possible in the attempt to lure new investors and to create excitement for the stock. Once the price of a stock achieved a high enough price, the promoters and insiders would sell the stock at a profit. New investors would then hold worthless stock at high prices which they could not then unload because there would be no other new buyers to come in and buy the stock.

While some penny stocks company may be the next Microsoft, many are not. To avoid investing in penny stocks that are the tool of scammers, you can:

Beware of unsolicited email or telephone calls. Salespeople will try to lure into buying their stock by promising high gains without risk. Only deal with people you know. If you have any questions about a penny stock, call your broker who can assist you in learning more about a stock.
Don't make hasty decisions after speaking with a promoter or after hearing a tip. Promoters will try to make you believe that an opportunity to make millions will only exist for a short time. These attempts to make you excited about a penny stock will sometimes lure the novice investor into making bad decisions. Always think about what is being sold to you and if you feel uncomfortable, stay away from such investments.
Don't believe any promise of great profits at no risk. No investment can deliver guaranteed profits at no risk. If you hear such claims, beware that you might be being scammed.

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