Penny Stocks

Penny stocks are stocks that trade for less than $1.00. In practice this definition has expanded to include all stocks that are traded over-the-counter. Price quotes are found mostly on the NASDAQ pink sheets. Financial information is limited and the companies do not have long track records.

Most penny stock trading is in reality momentum trading. That is, finding a stock that is going up, riding it for a while and then selling before it comes crashing down. Penny stock investors hope to invest in the next MicroSoft, a micro company that will grow to dominate its industry.

Penny stock companies do not have much margin for error. Mistakes in liquidity management or excess leverage can bankrupt them very quickly. Most penny stocks fail. I do not recommend investing in penny stocks.

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