Tips for Investing in Penny Stock Market

The penny stock market can be a tricky place for anyone to navigate. Whether you’re a novice investor or a seasoned veteran, it can be hard to figure out what stocks are worth investing in, and which ones you shouldn’t touch with a 10-foot pole.

Penny stock

Is the company trading low because it is a small company looking to grow or because it’s been delisted from the major stock markets? If it has been delisted – why, and should you avoid it? Adding to the confusion are the “pump and dumps” – those stocks that are artificially inflated by stock promoters that are looking to make a fast dollar.

Gautam Muthusamy, co-founder of SimplyPennies.com, shares his top tips for anyone that is interested in learning more about the penny stock market and investing in penny stocks.

1. Smart pennies: The idea that penny stocks are not worth investing in is simply untrue – in fact, the majority of companies in the penny stock market are small companies that are just starting out; or, are comfortably small—and producing a solid product with solid revenues. Penny stocks are attractive, sometimes, because, investing in these low priced stocks does not require much a huge amount of capital.

2. Big things come from small companies: Because penny stocks are so low priced, often times, they can see massive jumps in their stock prices on good company news. It is not uncommon to see 100-300% moves in a single day on some of these stocks; at the same time, it is not uncommon to see -50-80% moves on some stocks as well! The penny stock universe is very volatile—and many traders and investors like this type of trading action. They’re looking for home runs!

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3. Beware the Pump and Dumps: Because there is not much market coverage in penny stocks, unscrupulous stock promoters get into the act. As long as the stock promoter discloses that he/she has been paid to promote a penny stock, almost anything that they say is ok. “Pump and Dumps” occur when these promoters artificially inflate a stock’s value via false reporting and news releases in order to sell their shares at a price much higher than what they paid. This is where SimplyPennies.com can be a great resource for information to the average investor. We do not take any money from 3rd party stock promoters. We deal directly with the company.

4. Don’t play the “musical shares” game: A “Pump and Dump” is essentially a game of musical chairs – or, more appropriately, musical shares. Essentially, one party hypes up a stock that is “thinly traded” (has historically low volume) and the other party (or “the sucker”) gets excited over this false hype and moves in to buy the stock. As the stock surges in volume, insiders sell off their stock, make their money – and you’re left with a loss.

The penny stock market is very fragmented. Large research firms do not track and follow these stocks – as such, there is an information vacuum. Penny stocks are VERY volatile. This brings in a lot of traders who are seeking the “fast buck”. SimplyPennies.com’s mission is to provide concise, accurate information about the penny stock market, and we never take money from 3rd part stock promoters, and are a resource for “pump and dump-less” penny stock news.

Gautam Muthusamy is co-founder of SimplyPennies.com, the go-to destination for penny stock news. Prior to founding SimplyPennies.com, Gautam also founded MyOtherProfessor.com, an alternate education site for college and high school students.

Photo credit: Tomitheos

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6 Responses to “Tips for Investing in Penny Stock Market”

  1. David |  Dec 29, 2010 at 5:59 am

    The article provides very basic and useful information about penny stocks. I think dealing with penny stocks is not rocket science but it requires dedication of time and in depth research to keep up with the market trends. So I agree that the best way to go about it is through a brokerage house to be on a safer and profitable side

  2. Peter |  Jan 19, 2011 at 12:09 pm

    so i’ve checked out simply pennies and I like what i see so far.

    they are not pumping stocks and the hosts are awesome!

  3. Mai |  Jun 16, 2011 at 11:30 am

    I’ve seen huge performance out of my credit cards stocks over the past few months, let’s hope it continues! My portfolio needs all the help it can get.

  4. james moylan |  Jun 17, 2011 at 1:12 am

    I have a web site where I give advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks. If their is anyone that is interested in these type of stocks you can check out my web site by just clicking my name. I would like to take a moment to talk about low price stocks not classic penny stocks or stocks under one dollar the term most people most often think of when the word penny stock is used. The single most important thing that investors must realize about low price stocks or stocks under five dollars is this’ their are companies of really decent quality trading under five dollars’ but for every one company trading under five dollars that is of decent quality their are maybe ten of poor quality. So the really big difference between those investors that are tremendously successfull when it comes to investing in low price stocks and those investors that lose enormous amounts of money investing in stocks under five dollars’ is having a great deal of knowledge and experience when it comes to low price stocks’ or having a total lack of knowledge and experience when it comes to low price stocks. Finding quality stocks under five dollars requires a lot more research than finding a decent stock above ten dollars.

  5. Sharelord |  Jul 13, 2011 at 6:26 am

    Penny stocks are good investment in stock market but i want to know how the penny stock is not risky to another stocks??

  6. commodity tips |  Oct 22, 2011 at 1:41 am

    very good post, i was really searching for this topic as i wanted this topic to understand completely and it is also very rare in internet that is why it was very difficult to understand
    thank you for sharing this,