I Don’t Like Penny Stocks

I don’t know what all the fuss is about penny stocks. They take your money go to zero and everyone seems to think that is a great deal. Not me, there are 3 reasons why I will never trade penny stocks.

1. They are Penny Stocks For A Reason

A company doesn’t go from $10 to $.10 unless there is something drastically wrong with it. Buying a penny stock and hoping it is going to make you rich is like betting on the horse with a broken leg just because the odds are 1000 to 1.

Sure the payout could be great, but realistically it isn’t going to happen. People easily realize that a small move from $.10 to $.11 is a 10% positive return. But they don’t realize that it can just as easily go to $.09 or $.08. Just because something is very cheap does not mean it is a good deal.

2. Pump and Dump

People try to use this illegal strategy on all stocks, but it is most common in penny stocks. What happens is a “Guru” will buy some shares of a penny stock trading for say $.30. Then he will go and tell everyone to buy this penny stock because it is going to make a move.

When everyone does buy it that buying pressure forces it to go to $.50 where the “Guru” sells his shares and the penny stock falls back down causing everyone who bought it to get crushed. I don’t see why I would want to be a part of that.

3. I might Get Lucky

Not many people see this as a bad thing. But think of it like this you go into a casino play the slots and win $100 on your first spin, what do you do? You stay and try to win more of course. Eventually you end up with an empty bank account and a great story of how you won $100 on your first spin.

The worst thing that can happen to you is to get lucky trading a bad system. Because you will never want to leave it. That is why everyone loves Vegas, even though the odds are against them they won big that one time.

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