Intro to Penny Stocks (The TRUTH behind Penny Stock Investing )

What are penny stocks and why are so many
investors and traders new to the stock market drawn to them? In this video, I’ll be breaking down what
penny stocks are for beginners, the truth behind these companies and what i believe
to be the smarter way to profit from these penny stocks as a small time day trader and
investor. If that sounds like an interesting topic to
you, make sure to subscribe, ring that notification bell and drop me a like for more free penny
stock trading videos on this channel. Let’s get started. We all know that investing in shares of a
stock means you are owning small percentage stakes of established companies like Apple,
which has a market cap of 900 billion. Market cap refers to the total dollar value
of a company’s outstanding shares. And it’s used by investors to determine
a company’s size. Penny stocks, are companies with a much smaller
market cap than our example Apple. Generally speaking, penny stocks are companies
with a market cap less than $300 million (micro caps), some even less than $50M (nano cap). Definitions vary but the Securities exchange
commission classifies penny stocks as companies traded under $5. And many of them, if maintained above $1,
are still traded on the Nasdaq or the NYSE, the regulated stock exchanges. However, the true penny stocks, are companies
traded below $1. These are what we call pink sheet stocks,
which are the companies Jordan Belfort pumped in the movie, the wolf of wall street. And they are traded on OTCBB, Over the counter
bulletin boards. And I will be comparing these two kinds of
penny stocks in just a second. So why are these penny stocks considered risky? The first and the biggest reason is the lack
of information available to the public. This really only applies to the OTC penny
stocks traded under $1. Companies listed on the pink sheet are not
regulated by the SEC and are not required to make financial documents available to their
investors. So without these documentations such as the
10K, investors cannot find out their cash flow, operating expenses and whether or not
these companies are actually generating revenue. As for the small cap penny stocks trading
above $1 and are listed on the Nasdaq and NYSE, these companies are required by the
SEC to file their financial statements, register for offerings and inform investors of important
updates. So in that sense, the penny stocks above $1
are a little less risky than the true penny stocks on OTCBB. However, they are still sketchy and easily
manipulated through misinformation and pump and dumps. Which is the second reason penny stocks of
all prices are considered risky. Many of these penny stock companies release
news and pay promoters to pump their share prices up with sensational headlines, like
i’ve talked about in many of my previous penny stock videos. These penny stock news releases often include
keywords in the titles such as “agreements”, “contracts”, “advancement”, “strategic
placement” etc. These are what I call sensational key words. Because theses sketchy penny stock companies
take advantage of the fact that most investors and traders in the market are lazy, and they
do not read past the headlines. If you’ve actually dive into reading and
analyzing the entire PR articles like i have in my past videos, you’ll see that most
of the time, the content is really all fluff, and no real promise in the company’s potential
earnings. And of course the purpose of these PR pump
is to drive shares prices up hundreds of percent as we have seen in past examples like $OPTT,
$BPTH, $YRIV and $ABIO. As the shares hiked up, that’s when insiders
of these penny stock companies start to sell and dump millions of their own shares on unsuspecting
investors. Or sometimes these penny stock companies will
take advantage of the pumped up share prices to issue offerings and raise more money for
their companies. We’ve seen examples of these pump and dumps
with OTC stocks. These penny stock companies recruit third
party online promoters to send out promo emails and publish false articles. While many will argue that the NASDAQ penny
stocks are regulated and less manipulated than the OTC penny stocks, the truth is these
sensational press releases are what’s considered “legal” pump and dumps. And we are now treading in the grey area now. It is indeed legal, in the eyes of the SEC,
to release exciting news about the company to investors. There has been some extreme NASDAQ penny stock
manipulation cases like $LFIN and $HUNT, both of these companies released misleading news
to drive their share prices up from under $10 to around $100 basically a 1000% ROI scheme. Both of these companies were investigated
by the SEC and delisted from the NASDAQ stock exchange to OTCBB. But let’s be real here, these two companies
being delisted only represent less than 1% of all the penny stock pump and dump schemes
in the market. Unless it’s really blatant insider trading
or manipulation like $LFIN and $HUNT stock, these PR pump and dumps from small cap penny
stock companies are really just everyday activities in the stock market. So i just want to raise awareness for new
traders and investors through this educational video. Penny stocks are inherently risky investments. It’s safer to always be skeptical of penny
stock promotions, PR releases, and penny stock chat room recommendations. Always do your own due diligence in the company. While I do think some penny stocks can provide
great profit opportunities for day trading and swing trading, I would AVOID investing
in penny stocks all together unless you have real inside information about the company. Two very common misconceptions about penny
stock investing is that many of today’s big companies like apple and amazon were once
penny stocks themselves, and that if an investor can buy into the investment at twenty cents
a share today, then he or she can make a fast 100% if the stock runs to forty cents tomorrow. Both of these misconceptions are not 100%
true at all. We must remember the single purpose why private
companies choose to go public. Companies go public and sell their stock shares
to investors in order to raise money, to fund their research and potentially develop products
to sell. Stocks are not listed to make investors money,
that’s not the priority anyways, they’re there to move capital from your pockets to
the companies bank accounts. And if the companies are truly profitable
and legit, then their stocks will rise in prices and make investors money. That is only true for profitable companies
with real products like apple. The reality is most penny stocks are actually
losing money and do not have real products at all. Instead, they just keep on selling their shares
to investors and raise more cash to operate and pay their board members until they one
day go bankrupt. In those unfortunate cases the penny stock
investors lose 100% of their investments and the insiders walk away clean with their salaries
and bonuses, paid by the investors of course. While it is true the price fluctuations of
some penny stocks from twenty cents today to forty cents tomorrow could potentially
make some investors 100% ROI. What most people fail to see is the downside
as well. The price of the penny stock could just as
easily drop to five cents tomorrow, in which case, the investors lose 75% of their money
in just two days. And very often when these penny stocks get
delisted from the NASDAQ exchange to OTC. and their share prices just kept on dropping
and dropping due to offerings, dilutions etc. and it’s not uncommon to see investors lose
basically everything in penny stocks. Of course, once a while there are penny stock
companies on the OTC that have worked very hard and showed impressive growth and finally
met the requirements to make their stocks available on the Nasdaq or the NYSE. A perfect example of that is a marijuana stock
called Aurora Cannabis, $ACB. Their stock shares were listed on the OTC
pink sheets as $ACBFF until october of 2018. However, the chances of most penny stocks
growing their business to be like Aurora Cannabis is extremely low. So instead of investing your hard earned money
into penny stocks, I think the wiser long term decisions would be to invest in established
companies such as apple, facebook and disney. Sure, you may not be able to own as many shares
as if you were to buy penny stocks trading at $1, but the long term percentage growth
on established companies is undeniable. And these investments are much safer as well. There is definitely a lot of money to be made
in penny stock day trading and swing trading. That means you would just be buying and selling
penny stocks intraday or within a short few days instead of over the course of months
years. Day trading dng swing trading strategies are
what I focus on a lot on this youtube channel. Investing or trading any securities involves
risk. Before throwing your money into just any penny
stocks, make sure to do your own research and establish your own risk reward profile. Always be skeptical of pr releases and do
not follow others’ alerts. This video is not a financial advise to buy
or sell any stocks, but to inform you about the potential risk involved with penny stocks
as well as the upside if you learn to day trade or swing trade them correctly. If you are interested in more detailed day
trading and swing trading strategies, feel free to check out more videos listed in the
description below. If you’ve found any value or entertainment
out of this video please drop me a like and subscribe for more free content in the future. Feel free to comment down below any questions
you may have as well. This is the humbled trader. Thank you guys for watching and i will see
you next time!

Leave a Reply

Your email address will not be published. Required fields are marked *