Investeens

If there's a Wild West in the investing world, it would have to be "penny stocks". These corporations get their name because their prices per share are usually in the pennies (ie: less than a dollar) and are often less than one cent! A penny stock may have a price of $.0033, representing a third of a cent.

What often makes a corporation a penny stock is the founders' decision to "go public" (ie: selling shares to the broad investment community) before the company has proven that it can successfully develop and sell products. Investors who buy its shares at this point are taking a big chance because they're buying into ideas that may or may not pan out.

For example, a company may claim that it is developing a part that, when installed in a car, doubles its gas mileage. The corporations needs $1 million to finish the product and market it to the automakers so it sells 10 million shares at $.10 each. If the product works, you could make a lot of money. If it doesn't, your entire investment will probably be lost. These companies need every penny (no pun intended) people invest in them, so they do not pay dividends. In fact, they may never have made a profit.

There are other concerns with penny stocks. The stock price can swing wildly, doubling or losing half its value in a single day. It is often difficult to research them. If you bring up the symbol of a penny stock on a popular financial web site, many of the usual links will be dim because they are not available.

Shares of these tiny corporations do not change hands between buyers and sellers all day long as with larger corporations. If you want to buy shares, you may have to pay a stubborn seller a high price to get his or her shares. If you want to sell, you may find little interest among buyers and have to drop the price you are willing to accept to motivate a buyer to step up and take them. The ability to sell quickly without having to drop the price significantly is called liquidity and penny stocks lack it!.