What Are Penny Stocks and Should I Buy Them?
These troublesome stocks have been misconstrued a lot in popular media, but what exactly are they?
May 26, 2021

One of the most frequent questions asked by new investors is related to penny stocks. These are stocks traded on the smaller exchanges or "pink pages". 

Penny stocks can be bought for next to nothing per share, sometimes a fraction of a penny. Investors often think, wow, it couldn't go lower than that. Trust us... it can, and very often it will. 

Let's start by going through why penny stocks are a bad idea to begin with. 

Firstly, they don't have to comply with the same accounting standards as companies listed on the NASDAQ or NYSE. Often times, companies are penny stocks simply because they can't comply with these standards or meet the minimum requirements of these exchanges. That's not the kind of company you should be investing in. 

These companies are not covered by Wall Street analysts, meaning there is very little historic or current information available.

Finally, these companies are incredibly volatile. This is what draws novice investors to penny stocks - the potential for massive short term growth. Keep in mind, it works both ways and penny stocks can quickly become worthless. 

Penny stocks are highly susceptible to price manipulation. This is where the pump and dump comes in. A pump and dump involves one investor buying up a large quantity of penny stocks. They then spread hype about the company (claiming to have inside information) through newsletters, message boards, cold calling, etc. 

Investors start buying (pumping) up the stock, making the price rise and pushing more and more investors to invest. The original investor then sells or 'dumps' his large amount of stock and the price plummets. 

Penny stocks may seem attractive for young investors, but really they are a complete gamble. Investing in established companies with brilliant track records is a much more secure and lucrative place for your money.

To summarise:

  • Penny stocks trade for very low figures - sometimes a fraction of a penny per share. 
  • They do not have to meet the same standards as companies listed on the NYSE and NASDAQ.
  • They are susceptible to price manipulation and should be avoided.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.

The Home of Successful Investing.

© 2023 MyWallSt Ltd. All rights reserved.







This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.