Beginning Investor Terms – Penny Stocks
Posted on | November 11, 2009 | No Comments
Penny Stock is a term I use a lot. But what does it really mean?. Penny stocks are really any stock whose price per share is under a buck. I guess it should really be pennies stock, but who is going to argue for the collective intelligence of the average investing professional? A penny stock is often not listed on a stock exchange like the New York (NYSE) or NASDAQ because they don’t meet one or more of listing requirement requirements including minimum price per share. This means that penny stocks are usually traded on the Over the Counter Bulletin Board (OTCBB) which is really an electronic quote system. To remain listed you need to meet some minimum financial reporting requirements. Another Over the Counter system known as the pink sheets is where penny stocks are traded, but there are no SEC requirements at all.
The traditional wisdom is that Penny stocks should be avoided at all costs. They are often volatile and illiquid, that is not traded in sufficient volume to enable easy entry into or out of a position in that equity. They are often not covered by analysts and may not provide any guidance on future earnings. They can be many of those things and more. The volatility I see as opportunity to buy in at a good value. Ditto with the no analyst coverage. Those are advantages for the small money investor. But. This is always the big but. You MUST do your own research. When you invest in Penny stocks , no one is going to do the research for you. But it is also an arena of opportunity and should not be shunned because it is one of the places that inefficiencies in share pricing can be huge. And if you are good at research and analysis, this is an area you can find your edge.
Related Posts:
Tags: Investing terms > Penny Stocks
Comments
Leave a Reply
Subscribe to Chroma Investing
