Do Penny Stocks Work?

Do Penny Stocks Work?





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Do Penny Stocks Work?

Do Penny Stocks Work?

Every so often stock analysts offer a list of penny stocks. Our question is do penny stocks work in general and do penny stocks work for your stock portfolio? Let’s start with an article from Money Morning, How to Find Good Penny Stocks to Buy Today.

The key to how to find good penny stocks to buy today is knowing what you are buying and if it fits your needs.

The first thing you want to do as a penny stock investor is figure out how much money you have to work with. Basically, don’t invest anything you can’t afford to lose.

We typically recommend no more than about 2% of your portfolio in one penny stock.

There are some great buys in penny stocks and there are penny stocks where scammers pump and dump. They buy and hype in order to drive up the price as you buy and get in. Then they sell or dump all of their stock letting the price evaporate. Do penny stocks work? The first step is to avoid the scammers or over-hyped stocks of the day.

Problems with Penny Stocks

In order to invest wisely you need accurate and timely information on which to make decisions. You should be trading stocks in a liquid market that lets you enter and exit positions when you want. Investopedia offers their take on penny stocks and lists four factors that should give investors concern.

• Lack of Information Available to the Public
• No Minimum Standards
• Lack of History
• Poor Liquidity

True penny stocks do not trade on major stock exchanges. They trade via pink sheet on over-the-counter markets. These stocks are not required to file info with the Securities and Exchange Commission so your access to accurate and timely information is nil. And new penny stocks have no history. The stock may have a great story but the company and its management have no performance history for you to consider. And because their stocks trade thinly you may have trouble getting in and out of the stock at the prices you want.

Past Performance as a Predictor

We looked at an article in The Street from 2011. They described the 10 Best-Performing Stocks under for that year. Here they are; each with a note as how they have done in the last five years since the article was published. The info is from Google Finance.

#10, Radio One, ROIAK

This stocks top price in 2011 was a share. It peaked above at the start of 2014 and trades at .63 a share today. It does not pay a dividend.

#9 Central Federal, CFBK

This bank holding company traded in spikes between and a share in 2011 and early 2012 when it fell to the .30 a share range where it remains today.

#8 Capital Trust, CT

This stock is not listed in Google Finance today.

#7 Authentidate Holding, ADAT

The stock was trading at about a share in 2011 and the highest it was until just recently was .82 a share in late 2014. Interestingly the stock jumped from {videoDescription}.50 a share to .38 a share in the first days of January of 2016 and has been falling ever since, now trading at .60 a share.

#6 USA Technologies, USAT

This one has a bit of growth. Having traded around in 2011 the stock dipped to a share in early 2012 and has grown to the .00 to .50 a share range this year.

#5 Dynatronics, DYNT

This company’s best days were in 2011 around a share. It has languished between and a share ever since and trades for .92 a share today.

#4 Synthesis Energy Systems, SYMX

This stock also had its best year in 2011 when it peaked at .50 a share. It trades for .06 a share today.

#3 Acceler8 Technology, AXK

This is no longer a publically traded stock.

#2 Evergreen Energy, EEE

The share price when The Street suggested the stock was .57 a share. This company only has data on Google Finance since 2013 when it was trading for a penny a share. Shares today go for 7 one hundredths of a cent each.

#1 Majesco Entertainment, COOL

This stock was trading for a share in 2011 and trades for {videoDescription}.82 a share today.

So, do penny stocks work? One might say that for the vast majority, once a penny stock always a penny stock. Many penny stocks go out of business. The only semi-impressive stock in this list is #6. USAT doubled in value in the last five years. The rest were all bad investments.

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