Penny stocks investing (also known as small cap or micro cap investing) could be both interesting and fun. What causes these low-priced shares exciting is the chance to only use a small amount of capital, invest it in a company which has an innovative business plan, and harvest a large reward.
In general, a penny stock is one that trades below a dollar, while you’ll find some people who would say a penny stock can be priced as high as $5. I, however, like to invest in penny stocks priced much lower – say under $.50. There are 2 stock exchanges you will find out these stocks trading. The first is the OTC: BB, or the Over The Counter Bulletin Board. The second is the Pink Sheets.
Stocks trading on the OTC: BB are asked by the Securities and Exchange Commission (SEC) to file audited financial quarterly reports with the commission along with annual reports. There are other filing requirements as well. The filing of these reports is mandatory therefore penny stock investors may get authorised info available to them before making an investing decision.
Stocks trading on the Pink Sheets may or may not be required to file such reports according to how many investors a particular company may have holding their shares. Companies on the ‘pinks’ with 300 or more investors are demanded to submit filings to the SEC very much like securities trading on the OTC: BB.
The Pink Sheets are called as such because in the days prior to online trading became the favorite method of buying and selling, brokers trading in these shares would receive bulky paper (pink paper) lists that were updated each week. This is how the broker would reference a stock if a customer was looking for info on a listed company.
The psychology involved in the penny markets is that you can receive a great return with a small investment – and that psychology is powerful. There are a lot of great success stories related with the penny markets. MCI, Pet Smart, Jenny Craig, and 7-Eleven are all companies that started out trading as penny stocks. Yet, when it comes to making it big, these companies are the exception rather than the rule.
Still, there is a lot of really great profit to be made with penny stocks investing. And here’s a secret about making money with the pennies: almost all stocks follow predictable patterns. It is up to the penny trader to learn to recognize these patterns and learn to take advantage of them.