Penny Stocks to Avoid
Protecting your investment strategy is important. While you should be playing close to the chest on your own strategy, you’ll eventually have to venture out into the world and see what other investors are doing, and that’s where trouble can creep in. Bad investments happen all the time, but they are rarely by accident. Promoters may try to point potential, uneducated investors toward their own stock, which is typically sold over-the-counter. They may even promise that there will be no brokerage fees, but they will be profiting in one way or another.
Stay aware of the general direction of the market, and stay on guard for the “salesman” that exists around every corner of the market. Here are some signs of penny stocks that you should avoid.
The Sinking Basement
Some stocks are attractive because they have hit a low price, and surely they couldn’t fall any lower, right? The answer is that they can, and most likely will if you’ve done your research. Stocks that have dropped by a significant amount will fall into the penny stock territory. It is important to understand that these stocks are dropping for a good reason, and most likely will not rebound for that reason. If a tech company is going under because of a lost patent lawsuit, how are they going to recover? Consider the reasons and you’ll understand why these stocks should be avoided.
We’re all familiar with the “Nigerian e-mail scam” involving an account with hidden funds that will be released to your account. There’s a reason these scams are so prevalent; other countries have looser restrictions on banking and transactions, and this extends to the market as well. If you’re not aware of the banking and investing regulations in foreign markets, do not invest in them. You will not be as well protected.
Finally, you will find that there are people who will promote their penny stocks as being the latest “hot tip.” These are especially popular with no-name or little known companies that seem to have popped up over night. Avoid hot tips in the penny stock trade. You can learn about penny stocks to watch from a licensed broker, but a tip from a website, or someone you just met is not a tip to throw away thousands of dollars on. Spend your money carefully, not impulsively.