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So this is probably one of the most common questions that i’ve been getting with me is people are looking for me to talk about penny stocks so this is basically going to be a video for complete beginners who want to learn about penny stocks so if you’re somebody who is already involved in penny stocks and you already have learned about it a lot of this information
Might be pretty basic but i am going to go pretty in-depth with this and kind of cover all the grounds in penny stocks so you might get something out of this video but if you already experienced with penny stocks this might not be the best video for you but if you’re a complete beginner and you’re looking to learn about penny stocks this would be in the video for
You so personally i don’t invest in penny stocks and i’m going to explain to you in this video why it is that i don’t recommend that beginners invest in penny stocks but for people who are looking to learn more about it and kind of decide if it’s an investment you want to get involved with maybe this will shed some light on that for you so first of all what is a
Pesar there’s a couple basic characteristics of penny stocks the first one is that they trade outside of the major stock exchanges so for the most part you don’t see penny stocks unlike the new york stock exchange around the nasdaq stock exchange the major exchanges there they have a small market cap and they generally have a low stock price so i’m going to talk
About this in a second here but basically most people have the misconception that a penny stock is a stock that trades for under a dollar a share but in fact the sec defines a penny stock as any stock that trades under five dollars a share now you do sometimes see penny stocks trading on the major exchanges under five dollars a share but for the most part you’ll see
Most of the cheaper penny stocks on smaller exchanges which i will tell you about a second here so what are other names for penny stocks sometimes they’re called otc which stands for over-the-counter that has to do with the training of the stocks they trade through the otc bebe which is the otc bulletin board so if you ever see that next to a stock symbol understand
That that is a stock that trades on the over-the-counter stock bolton board and they’re also called pink sheets because basically pink sheets are daily publications compiled by the national quotation bureau with a bid and ask price of over-the-counter stocks and they are actually printed out on a pink piece of paper hence the nickname pink sheets and like i said
So the sec defines a penny stock as any stock that trades under five dollars a share most penny stocks like us that don’t trade on a major exchange but some do because large companies end up trading in that sec defined penny stock range of under five dollars based on market cap so if a stock is doing this performing really badly it’s possible for that stock to be
Trading on a major exchange but to be trading under five dollars a share so who actually invests in penny stocks who are penny stocks for cyborg investor’s who have a high tolerance for risk our generally people who are investing in penny stocks these are a very risky investment penny stocks have high volatility high volatility it means higher risk and anytime that
There’s higher risk there’s higher potential reward but one is also a high potential for reward there’s also very high potential for loss penny stock traders generally set a stoploss stop-loss order on their investments so that’s basically something you can set up where you have it automatically sell that position if it’s full of a certain percentage or a certain
Dollar amount so i don’t really know anybody who trade penny stocks and just leaves them there to let them freefall generally you’re very careful with them because because the price is so volatile they could fall very quickly so you have stop-loss orders in place to try to kind of mitigate some of that risk associated with them penny stocks are appearing due to
Their explosive moves so i’m sure you guys have heard of penny stocks you know going you know doubling or tripling in a trading day so that’s why people like the idea of penny stocks is you invest in this in a penny stock you don’t pay a lot of money for the investment because they’re training at a lower price per share and then there’s the potential supposedly
For that stock to quadruple in value and the thing is guys that is so uncommon and what’s more common is that you’ll invest penstock and they’ll fall in value and even sometimes – you’ll see these companies end up going bankrupt and you lose your entire investment based on genes are unrealistic generally with listed stocks because they’re not as volatile there’s
Generally less risk associated with unlisted stocks – because they’re more reputable and stable companies and there’s certain standards you have to be held to in order to be on a major exchange which we’ll talk about in a little bit here well i pretty much have this diagram here just to explain basically some of the characteristics of penny stocks so a penny stock
Company what would you expect out of a penny stock company well they’re going to be a growing company they have limited cash and generally limited resources as well and they’re often not profitable companies so here’s a couple of things depending on which exchange is on whether it’s traded on pink sheets or the otc b v the otc over-the-counter bulletin board they
May or may not have to even file with the sec so as a result it’s incredibly hard to get credible information on penny stock companies i’ll explain in a second because one of those two they do have to have some filings with the sec but the other one they don’t have to file with the sec whatsoever now with a listed company on a major exchange they have to file with
The sec so you know you can get credible information on that company they’re not going to be on a major exchange you’re going to be on the over-the-counter bulletin board or the pink sheets so as an investment if you were to invest in penny stocks what would you expect out of a penny stock investment first of all they’re highly speculative meaning the investments are
Largely based on speculation of future value they’re a very high risk like i said before you can invest in the penny stock and lose your entire investment because the company goes bankrupt and there’s very high volatility with these stocks and that is due to the fact that there’s very low trading volume and there’s poor liquidity with the stock the other problem is –
And i know i meant i’m going to mention – somewhere in here with all my notes that have but just to throw this out here – a lot of people don’t realize this but what’s good about trading on a trading a stock on major exchanges there’s so many people buying and selling that stock there’s high liquidity and as a result it’s pretty easy to sell or buy that stock on
Because there are so many people actively trading that stock now with a penny stock there’s no guarantee that there’s a buyer on the other end when you’re looking to sell that stock so you can potentially be in a position where you invest in a penny stock it goes way up in value you go great let me sell it and you can’t sell it because there’s not a buyer on the
Other end because there’s poor liquidity with that stock so that’s something you have to consider as well before you decide to invest in the penny stock so if for whatever reason you absolutely insist on trading a penny stock my recommendation to you is to at least trade a listed stock because these stocks are required to file with the sec and they’re regulated with
The sec if you’re trading pink sheets stocks there’s no regulation with the sec required and with the otc bulletin board stocks there’s minimal filings with the sec that are required so why is it that penny stocks are a risky investment there’s four main reasons here the first is the lack of public information so as we just said here the otc bulletin board stocks
Are required to file minimal information with the sec while the pink sheet stocks are not required to file with the sec as a result it is difficult or in some cases impossible to find credible information on these companies so if you’re somebody who is investing long-term in a stock where you’re looking to learn about you know the company fundamentals it can be
Very difficult to find good information on the stock and you can’t even in some cases guarantee the information you do find is legitimate in credible information when you’re treating a listed stock because they are required to file with the sec and they’re heavily regulated by the sec the information is much more credible when you’re looking at the fundamentals
Of the company number two is that there are no basic standards basically listed stocks they have to fulfill certain standards in order to say lists of the stock exchange otherwise on the major exchanges otherwise they end up getting d listed and a listed stock will then be trading on either an over-the-counter volton board or through patience so they have to
Fulfill certain standards in order to stay listed now on the other hand there are no standards to remain on the otc bulletin board or on pink sheets so there’s no basic standards for companies to be on there so there’s nothing guaranteeing that this is a good company to invest in whereas would be major exchanges there are standards they have to follow number three
Is history so because penny stock companies are often newly formed companies there’s no history as base that investment also and in some cases if there is a history it is one with a poor track record or if there is no history on them there’s no track record for that company and the other thing too is we talked about the risk of companies going bankrupt is much
Higher when you’re investing in penny stocks because many of these companies are approaching bankruptcy and when a company goes bankrupt pretty much everybody gets paid before the investors get paid so you’ll be lucky if you ever see any of your money that you had invested in that stock and number four is liquidity so liquidity is basically the degree to which
An asset or security can be quickly bought or sold in the market without affecting the assets price this is where there’s a lot of danger associated with penny stocks okay first of all like we said before it may be very hard to find a buyer when you’re looking to sell your penny stock but second of all there’s a lot of traders out there who are manipulating the
Stock price because of the poor liquidity meaning that changes you know it’s more people or buying or selling there’s more of an effect on the actual stock price of a stock with more liquidity so basically you have people that do what’s called a pump and dump scheme i talked about this in one of my other videos i don’t remember which one it is but there’s a lot
Of scams associated penny stocks um i’m just going to mention this one that’s the most common one but if you guys are curious look up just penny stock scams and there’s a lot of them that are explained there and if you guys want me to do a video just on the scams and penny stocks let me know and i can now try to get that out to you guys well basically the pump and
Dump scheme is where a somebody will buy a large amount of some random penny stock okay and generally this is people who have an influence or they have a to speak to so let’s say somebody had a stock market newsletter that sent around people emails and they had active readers so they would buy a large amount of that penny stock okay then they would send around a
Newsletter saying this is the next hot penny stock you need to buy as much of this as you can get your hands on so then when everybody listens to them and buys this penny stock the price of the stock source and then the person who wrote that newsletter sells for a profit and then just walks away and soon after the stock price topples because there’s nothing
Justifying that stock price because nothing that they said about that being that penny stock was actually true so that’s what called the pump and dump scheme and as far as people i know who invest in penny stocks i have a couple of friends of mine who have invested in them and a couple of them have had luck so like data invested in penny stocks and they’ve seen
It quadruple in value and they’ve made a lot of money but the problem is guys is how is that repeatable because generally when you’re investing in penny stocks you might as well just close your eyes and just point and just pick whatever one your finger lands on because there’s no real way to follow the charts because the charts are so volatile it’s hard to find
Credible information so how can you repeat that in the future that’s what i want to see what that investment is okay i’ve made money i want to consistently make money going forward i don’t want it to be random where it’s like hey i was able to be lucky and pick a good stock i hope it happens again and so basic is people i know who have invested in penny stocks most
Of them have lost money of the few i know that have made money they end up just continuing to buy penny stocks going forward and they can’t repeat that create a quadruple of price that they did before on that first pay stop because it’s largely just based on speculation and luck and i’m not a type of person who wants to invest based on luck if i was i would just go
To the casino and you know i don’t know a lot of people will get penny stocks and investments and especially when i’m talking to these animals to the ones that are on the like the otc bulletin board and the pink sheets i don’t see those as an investment i see this as a gamble to be honest with you guys the only people that i know that are making consistent money
On penny stocks are actually people who short sell pump and dump schemes the biggest person i know who does this is tim sykes i’m not sure if you guys have heard of him before he does a lot of promotion and a lot promotion tactics are kind of he’s kind of known as like the typical douchebags market investor because he puts up pictures of himself driving cars and
Holding big stacks of money to promote himself and is i guess his strategies are kind of unconditional or the way he comes across and i’ve never like watched any of his videos but i’ve read a couple articles about him but basically what they do and the people he teaches what they do is they basically watch for what appears should be a pump and dump scheme and then
They short sell that stock and they make money from the falling stock price so that’s not a conventional trading method and it’s not a simple trading method either that’s quite complex so i’ve never short sold a stock but it’s a little more involved than just buying a stock low and selling a high from everybody from everything i’ve found i have not seen people who
Have consistently made a profit with the strategy of buying low and selling high with penny stocks all right so how does a penny stock actually show up on the market so this is basically how a penny stock is born first of all the company files registration statements or registration statement with the securities and exchange commission or they file an exemption
From registration and then they end up they begin taking orders from the investors and then at this point company company can apply to be listed i major exchange or continue to trade over-the-counter this is a process known as an ipo or an initial public offering of stock the ipo is a means for the company to raise money to basically sell involve a portion of their
Company in return for capital to expand or grow their business it is difficult for small companies to get or stay listed on a major exchange due to hefty costs strict regulation and requirements so that’s why you’ll often see stocks that are listed out of following off and end up trading on a penny stock exchange for that reason there it’s difficult though to stay
Listed and it is all it’s also common for companies to offer additional secondary market offering after the initial public offering and the problem with that is it actually will dilute the shares of the stock on the other thing to remember with penny stocks too is there is after-hours trading so many penny stocks can be traded after-hours and maybe the market move
Happen after hours making it extremely risky to leave a stop unattended as you guys know with lifted stocks there’s market hours and you can treat stocks during market hours but off hours you can’t trade stocks you can set orders to sell immediately at the open or buy immediately at the open of the markets but you can’t actually exchange shares after market hours
But with some penny stocks you do have that option to trade shares off market hours the other thing to do to that poor liquidity even if a penny stock spikes after hours it can be difficult to sell it so you could have a stock go way up maybe it’s trading after hours it’s not pressure goes up you try to sell it and there’s no buyer on the other end looking to
Buy that stock and the other thing to remember with this is the quotation systems around penny stocks they’re not as good penny stocks are known to have poor reporting making accurate quotation difficult to find so guys that’s pretty much the basics of penny stocks here so if you’re like a beginner investor and i know them i understand the allure with penny stocks
Because you’re thinking like okay well let’s say you’re trying to invest $1,000 and you see a stock that’s trading for $1 a share that’s technically a penny stock versus a stock that’s trading at $100 a share and you say well i can only buy 10 shares of that listed stock or i can buy a thousand shares of this other stock and it seems like you’re getting more bang
For your buck but stock price has nothing to do with how good a company is or how good an investment is and a lot of very shady people are out there trying to push pay stocks on people i know when i was doing research for this video just looking at who had made videos on penny stocks a lot of people are out there making videos making penny stocks looking really like
A good investment for beginners and it’s just unfortunate because they’re not a investment for a beginner penny stocks are for experienced investors who have a very high tolerance for risk so as a beginner getting into stocks it is the last place i’d recommend you invest your money if you’re looking to get started in the stock market maybe look at a dividend stock
Or just simply invest in a company you’re really luck that would be like i guess kind of where i’d recommend getting started you know pick your favorite company maybe you really like apple or any certain company and you want to do a long-term investment and learn about you know checking stock prices and learn about dividends and you know about quarterly earnings
Reading earnings statements and stuff like that that’s the best place to get your feet wet penny stocks are not where you should be getting started with investing but anyways guys that’s pretty much all i got this video if you guys have any questions about this topic or any other topics i cover on the channel please feel free to drop me a comment below and if you
Guys are looking to learn more about investing in stocks not penny stocks obviously but i do have my guide on investing in the stock market which i will link up in the description and there should be an annotation popping up here on the screen as well but if you guys enjoyed this video please drop me a like and i’ll get there subscribing to be notified of future
Uploads and i thank you guys for watching this video you
Transcribed from video
PENNY STOCKS FOR BEGINNERS 📈 Basics Of Investing In Penny Stocks By Ryan Scribner
