What Are Penny Stocks?

The term "penny stocks" seems to conjure up a certain amount of mystery and intrigue. People looking for ways to make money on stocks often ask questions like, "What are penny stocks?" and "What is a penny stock?" as if they were some radically different kind of stock. They want to know where to find penny stocks, where to buy these mysterious penny stocks, and what's make them different from other stocks.

Basically, a penny stock is any stock where the price per share is under a certain value. For most investors (me included), that means any stock where the price per share is under $5. However, others use other cut-offs such as any stock that trades under a $1 which I suppose would make them technically a "true" penny stock as they would trade for mere pennies per share. However, the $5/share mark is the most commonly accepted definition. In my very first post for this blog, I provided a much longer definition for penny stocks which you can read but technically penny stocks aren't really any different from other stocks.

Now, after having given you a simple and somewhat formal definition of what a penny stock is, you need to be aware that in practice things a e a whole lot more muddy when it comes to the "universe" in which penny stocks exist which I consider to be the "wild west" of the stock market - you can find gold if you know where to look but the laws and common practices are a lot more loose and wild and you need to know how to protect yourself. So, for those asking, "What are penny stocks?" because you are seriously considering buying some penny stocks, I want to give you a few practical tips that really get to the essence of what you are probably REALLY asking.

First and foremost, when most people ask this question they are really wanting to know, "Can I make money on penny stocks?" They also want to know "how to make money on penny stocks." So, I strongly encourage you to click on these links and read my articles that really get to the heart of the issue before you take any further steps. I say this because I see so many investors, especially newbies, who just jump into trading a penny stock because of some hyped up information they've read without really knowing the most effective (and safest) way to make money with penny stocks. It would probably a really good idea for you to read my article, "How To Make Substantial Amounts of Money With Penny Stocks - And Reduce Ricks" (one of my close friends tells me this is my best article) too before you get started. It actually doesn't take much time or effort if you have the right information.

Next... speaking of safety/risk, most penny stocks, in fact the vast majority of them, I would consider a highly risky investment with no better odds than buying lottery ticket - except you stand to lose MUCH more than the cost of a lottery ticket. I am sickened by all the scams out there which intentionally play on people's emotions and secret desire to strike it rich overnight. Now, having said the above, if you know how to weed through all these scams and learn how to reduce your risk, the top 1-2% of all penny stocks are VASTLY more profitable than other stocks, including the well-respected blue chips which I actually avoid like the plague. In fact, I hardly even trade mid-cap stocks anymore because I make soooo much more trading penny stocks. One the rare occasion I venture beyond penny stocks, I trade small caps - but I digress, let me move on...

In all my years experience, what I have found to be the #1 secret to making good money with penny stocks is CONSISTENCY. It seems that most investors are looking for the one BIG deal that is going to make them a ton of money over-night. The problem with this mentality is that it is easy to get scammed. Even if you are really lucky (most aren't with this mentality) and make a ton of money on one trade, what then? Do you go looking for the next almost too good to be true investment? I can tell you that people who do this almost always end up losing their entire investment on the very next trade and they never seem to amass a real fortune. The best way to amass a fortune with penny stocks is to make a very nice profit over and over again. This does not mean trading every day but it does mean trading at least once a month, perhaps a few times a month. It also means you have to have a consistent source of really good penny stocks to trade and you have to know the best time to trade them. It means you need to stop looking for that one BIG DEAL that is going to net you a 1000% profit in one day! While this DOES happen in the penny stock world, you shouldn't count on it and that should not be your primary goal. You need a nice consistent stream of trades where you net a 20% - 100% profit (with an occasional 100+% profit thrown in for fun - it IS fun when this happens I must admit). So, how do you do this? How do you CONSISTENTLY week after week, month after month, find these profitable penny stocks. Now, I'm not like most of the so call "experts" online... I'm not going to keep teasing you... I'm just going to tell you straight up exactly how I do it - which is a technique that is quite easy to copy:

You buy premium penny stock picks (see my very best pick service linked below) from professional penny stock analysts who specialize specifically on these types of stocks and exactly when to buy them. When you buy these picks, they come to your email box usually once a week (don't mess around with those that come once a day because they are never consistently good - NEVER - it's much better to get fewer picks that are of very high value), and you trade them. I almost always find new sources of penny stock picks by referral and then I test them for a while to see how consistent they are and also how profitable they are on average. This is a very simple way to make money on penny stocks on a very consistent basis and without having to fret over the research which is incredibly difficult to do. It only takes me maybe 1-2 hours a week on average. Sometimes I spend a little more but that's just because I have always found stock trading fascinating and I  enjoy reading about companies that are largely unknown but on the brink of taking off.  Here is the very best source of penny stock picks I have - and get this, it is one of my least expensive sources too!

So, let's get back to "What are penny stocks?" For me, they are a very easy investment vehicle by which I can make a lot of money, and keep doing so consistently, as long as I don't allow myself to get "too greedy" and start buying into all the nonsense hype out on the internet regarding penny stocks. It's crazy out there and it's best to avoid it entirely. For me also, I derive a great deal of joy out of taking a certain percentage of the profits I make from trading penny stocks and pouring it into various non-profit causes I care about and also from doing some random acts of kindness. Giving back "buys" more happiness than I can gain buying stuff for myself and I encourage all my friends and all my readers to consider giving back too once they've built up a nice cushion for themselves and their family. As always, good luck and I wish you all the best. Don't forget to check out my best pick service linked above - this is the key to making good and consistent profits with penny stocks.