Don’t Be Penny Foolish!

what-are-penny-stocks

When I first started investing, I fell into a trap that many new investors fall into.  That trap is putting money into penny stocks.

Penny stocks trade at pennies for a reason.  They are usually very small, unproven companies with questionable business practices as well as management.

I know it’s hard to resist the temptation of buying a developmental biotech, trading at 10 cents per share, that may have the cure for cancer.  Hell, you could buy 100,000 shares and cash out at $100 when the company gets bought out!

However, the likelihood of that happening is slim to none.

Don’t get me wrong…there are a few companies that traded below $2.00 that became great investments.  Most of these didn’t start off as penny stocks, though.  They fell there because of a market crash.

It’s okay to take a flier on a young company that may have promise, meaning it has good management and real technology behind it.  But try to stay above $1.00.  And don’t make your entire portfolio consist of companies at or close to $1.00!

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