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Truth Behind PennY Stocks Investing | Amazing Adviser

In this article we will discuss about the real truth behind Penny Stock Investing. If you want to trade in Penny Stocks then you must check out this. So let's start.

In this article we will discuss about the real truth behind Penny Stock Investing. If you want to trade in Penny Stocks then you must check out this.
Image Credit - Google Images | Smallbizclub


What are penny stocks and why are so many  investors and traders new to the stock market  drawn to them?  

In this article, 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 articles on this channel.  Let’s get started. 


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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. 


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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 articles.  

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 articles, 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. 


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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. 


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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  article. 

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 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  releases and do  not follow others’ alerts. 

This article 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 articles listed in the  description below.  

If you’ve found any value or entertainment  out of this article 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.

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