Penny Stocks Master Publishes "The Dangers of Penny Stocks

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Successful companies are not made in a day and companies with great futures do not simply pop onto the marketplace. Most start out as penny stocks and they work their way up through the ranks. However, many ignorant investors think that getting rich quick by investing in penny stocks and all it takes is finding just those stocks. What we want to point out in this article is that penny stocks are not always the best path to financial success.

First Let's Look at What Exactly A penny/Microcap stock Is


We shall refer to these types of stocks as microcaps and "penny stocks" for the sake of making things simple. While penny stocks are classified as such not everyone agrees on which stock is a microcap or not. In general if a stock market capitalization is between $50 million and $300 million it is considered a microcap but this too is a blurry issue. The SEC (Securities and Exchange Commission) classifies all stocks under $5.00 as penny stocks as do we while others consider penny stocks to be only those trading under $1.00. But to be sure, all stocks trading on the Pink Sheets are considered penny stocks by us.

The important thing you need to know is that penny stocks are far more dangerous than other stocks. Penny Stocks are very much like junk bonds in many cases.

So What Is the Problem With Penny Stocks?
What makes penny stocks risky? Let's look at the most important concerns you need to consider before investing in penny stocks:

Information Available to the Public Is Poor
Part of a good strategy when investing in stocks, microcap or otherwise is to obtain as much tangible information otherwise you will not be able to make an informed decision. When it comes to penny stocks such information is very hard to come by mostly because it is hidden, it is outdated and much of the time misleading. For example, Pink Sheets (stocks with a .PK after the stock symbol) are the most dangerous kinds of stocks because they are not regulated. They do not have to report to the SEC or anyone else and they can say whatever they want in public and press releases and there is no way to verify what little information they do provide. In addition there are 1000s of con artists who disseminate false information about PK stocks in order to manipulate the stock price for their own benefits. To make matters worse, much of the information made public about PK stocks is published by by sources less than credible but those sources often make themselves appear credible.
Lack of Minimum Standards
Normal stocks have to must comply with SEC and stock exchanges regulation and make regular reporting and provide sources for the information. They have to prove everything they say and open the doors to their accounting books. The OTCBB does require (.OB) some timely reporting but even those are not always as good or reliable but the Pink Sheets are not regulated by anyone. It is almost like the Black Market of penny stocks.

No Company History
One of the dangers of microcap stocks is that many of them are very new and when they run out of fools to fund them they shut down and start over under a new company name. Finding the history of a microcap is often an exercise in futility and while many do have a track record often times it is not a good one which makes picking good penny stock picks very hard. A great deal of leg-work.

Poor Liquidity
Often times investors buy a penny stock or pink sheet stock which is hard to sell. If the liquidity level (trading volume) is low you will have a hard time selling the stock which will require you to lower your ask price. Many times the company executives or affiliates put out false or questionable press releases in order to either manipulate the price to go lower or higher, depending on their interests. If the trading volume is low it makes it very easy for other traders and market makers to manipulate the stock as they see fit and believe this, it will not be in your interest when they do this. Most OTCBB and PK stocks are the target of penny stock picks websites who practice pump-n-dump especially if the float is small. Never buy a stock with a small float, even normal stocks with small floats are dangerous because they can be manipulated with ease.



A Problem for New Investors
Microcaps are major problem for the SEC because there is nothing it can do about it and there is a great deal of fraud involved in penny stocks. There are literally 1000s of penny stock picks websites out there pumping junk penny stocks.

Biased Recommendations – Many penny stock companies and even individual investors and investing firms hire public relations firms, individual investors and stock picks websites and pay them well to promote their stock through television ads, internet websites, radio shows, email etc. etc. in order to persuade you to buy their stock.
Here is an example:

"These companies have compensated me to have their profiles and press release distributed to this board. " http://www.hotstockmarket.com <-STAY AWAY FROM THAT BOARD!

As soon as enough fools have stated investing and the stock makes a slight move upwards other fools think something big is about to happen and they buy as well while the price moves up while at the same time those company executives, affiliates or scam-investors sell their stock at a profit. This usually takes place quickly and once the con artists start dumping the stock starts to tumble and the poor fools are left with a bunch of worthless stock. If you receive emails advertising a stock or see stocks being pumped/advertised on public discussion forums stay away from them unless they are promoted by someone with a good reputation and track record. If a new press release comes out don't just read it and eat it up. research it and investigate it well. ( http://www.pennystocksmaster.com/ )

Off-shore Scams– Under regulation S, the SEC allows companies to sell stock outside the U.S. to foreign investors without registering the stock. These companies will then sell the stock at a discount to offshore brokers who, in turn, sell them back to U.S. investors the very next day for a substantial profit. If you see a stock start to trade on high volume and the price starts to drop fast this is usually what happened. They bought the stock at up to 70% discount from the company who owns the stock and dumped it the next day or soon after they have started their pump campaign.


Many investors allow greed and wishful thinking to cloud their judgment and invest in all sorts of junk penny stocks. In our opinion 95% of all penny stocks are junk. Don't buy any stock pick you see mentioned anywhere or everywhere without doing your own due diligence. There are countless stock picks websites run by pampers who have mastered the art of deception. Stay away from them.

In Conclusion
Yes, some companies on the OTCBB and Pink Sheets are of good quality, and many OTCBB companies are working extremely hard to establish themselves and establish a good reputation so they can move up to the Nasdaq and NYSE but there are very few of them.
Most investors are far better off staying away from penny stocks because even the good ones fall victims to unethical market makers and manipulates. If you cannot resist the lure of the real opportunity, and yes, big money is being made by many, then please do your own due diligence before you buy any penny stock. Even our penny stock picks.