Best stocks under $5
CHARACTERISTS OF PENNY STOCKS
Penny stocks have certain characteristics:
1. The price per share is low (usually five dollars or less, but can be higher)
2. The price will often go lower than one can imagine.
3. The low price makes these stocks targets for manipulation.
4. They tend to trade thinly sometimes going for weeks without a buy or sell.
5. At times it is nearly impossible to find buyers for those wanting to sell.
6. Reverse splits of ten for one happen occasionally, to boost the price.
7. The risk is exceptionally high.
Although there is no set definition of penny stocks, many investors and brokers consider any stock selling for less than $10 a share to fit the category (five dollars and less is most common). Some prices on these stocks have dropped so low that they indeed sell for pennies. If shares are originally issued as penny stock, in many cases the company itself did the underwriting. Several million shares were probably issued and are not blue sky in every state. Such conditions can make trading the stock difficult or impossible. It is not unusual for them to be fairly easy to buy and difficult to sell, at any price.
LURE OF MYTHS
Some investors believe that big, successful companies started out as Penny stock. The amount of risk in the low price situation increases dramatically as the price of the stock drops even lower. It can be true that reward potential increases as risk increases, but this is often not the case with penny stocks. If a company whose stock is selling for about 50 cents has two or three employees left and they are unable to manufacture product or even ship product that company will most likely go out of business and the stock price will drop to zero.
THINGS TO WATCH OUT FOR
High Pressure Sales Techniques
Investment in a legitimate emerging company is long term. A good little company is usually not going to skyrocket in a couple of weeks. Building a sound company takes years, few days or weeks to decide whether the investment is right.
Blind Pools and Blank Checks
Do not invest in any security without being told exactly how money will be spent. Be sure to know which properties the company plans to buy with the offering proceeds and how much money is to be spent on management and promoters.
Mis-marked Trade confirmations or new account cards
Be very wary if the trade confirmation is marked unsolicited if the broker did, in fact, solicit the trade. While it may be a simple mistake, unscrupulous penny stockbrokers often mark the confirmation as unsolicited to avoid the registration laws and the fair just and equitable standard. Watch for misstatements about net worth, income and account objectives as well. Investing in penny stocks is speculative business and involves a high degree of risk. Often, brokers will enhance the new account card to make it seem that suitable for a penny stock investment.
Unauthorized transactions
Be alert to placement in the account of securities did not agree to purchase. In some instances a broker may try to pressure into purchasing the stock, claiming that since the stock available. In some cases the broker is temporarily parking the securities in the account, perhaps to meet the minimum distribution or for any number of reasons. In some cases an unauthorized trade is simply a mistake but in any case, complain immediately, both verbally and in writing to the broker, broker?s manager and to the securities division.
Buy direct sell to whom
Sometimes penny stock can be purchased directly from the company but the company might not be willing to buy the shares back when the investor is ready to sell. Unless the investor wants to own a controlling interest and manage the company, the super low priced penny stocks are usually best avoided.
TAKING A FLYER
If any one feel an overwhelming urge to take a flyer on a penny stock, one way to lower the risk is to buy only those shares on which they can obtain reliable research information as would use to buy blue chip stocks for a long term investment. This will at least give some idea as to the company?s prospects for recovery.
RELATED TO PENNY STOCK
Penny stocks are often thinly traded and easily lend themselves to fraud and unreasonable markups that are almost impossible to detect. The stock markets depend on investors at all levels being essentially honest and straightforward. The problem is that a dishonest firm or broker can come along and raise havoc just by ignoring some of the rules. It takes a while for them to be caught and in the meantime they can do millions of dollars in damage. Thinly traded and penny stocks are prudently best avoided.
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