Why People Buy Penny Stocks

It's no big secret why people buy penny stocks. They buy for one reason: The potential for astronomical gains that can be obtained when investing in a penny stock company, not unlike buying a lottery ticket. Although some would say that the chances of purchasing a winning lottery ticket are far better than buying shares in a company trading on the Over The Counter Bulletin Board or Pink Sheet stock exchanges, and very often they are correct in their sentiment.

If you're reading this hub page you are more than likely interested in the possibility of investing in penny stocks. Good for you since you may be on the road to avoiding the biggest mistake made by new penny stock investors. The biggest mistake a penny stock investor can make is lacking the knowledge necessary to be successful. Very often new market participants with very little knowledge of how the larger markets work and even less about the dynamics of the penny stock market, dive in based on a hot tip received from a friend or a unsolicited email. Unfortunately, this scenario is how most successful penny traders cut their teeth as trading neophytes. Live and learn or the school of hard knocks,,,dealers choice.

Seeking out and obtaining the knowledge to be successful as a penny stock investor is the most important step a potential investor can take in becoming profitable. Relying on stock picking websites or tout newsletters is a recipe for disaster since most are paid to issue glowing reviews and profiles about the companies they tout. Self-reliance along with learning to read stock charts to obtain technical knowledge is key. Once a working knowledge of stock charts is obtained, large numbers of charts can be quickly scanned for possible chart formations that may indicate possible entry points for a successful trade.

Once a stock is chosen by it's chart, it is now time to look at the the fundamental side of the company. Learning to read quarterly filings as well as current and past news releases will often reveal a wealth of information that can determine whether or not the stock is worth owning.

What many new investors don't realize is the fact that penny stocks should be reserved only for investors with the experience and knowledge to make informed decisions before purchasing shares in a stock that trades on the OTCBB. Also, most new investors are under capitalized and cannot afford to take the losses often associated with penny stock companies. Only those investors that have the tolerance for risky investments and the discretionary income available should invest in these highly speculative equities. Caveat emptor - Let The Buyer Beware!

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