Financial Ideas About Penny Stocks And Why Everyone’s Talking About Them.
Penny stocks are considered by the financial industry regulators, like the SEC and FINRA, to be securities which trade “over-the-counter”, as opposed to on a major stock exchange like the New York Stock Exchange (NYSE) or NASDAQ.
An example (as of this writing) would be Titan Pharmaceuticals (TTNP). If you go to Google Finance, you’ll see it listed as Public, OTC:TTNP.
(Important Note: I AM NOT RECOMMENDING THIS STOCK, JUST PROVIDING AN EXAMPLE). By comparison the well-known Google itself shows up on Google Finance as Public, NASDAQ:GOOG. (NOT RECOMMENDING THAT EITHER).
The regulators also consider any stock priced at less than $5.00 per share to be a penny stock. The threshold used to be $1.00 per share, which makes more sense, but inflation has caused the minimum price to be higher, while the name just stuck.
Penny stocks have most often been viewed as having higher than normal risks. They typically represent ownership in a company which has struggled to make a mark in its business, or which perhaps faces stiff competition without anything protecting it or differentiating it from competitors. Another possibility might be a company which makes a product which becomes outlawed or infringes on another company’s patents.
These very low-priced stocks are not for the faint of heart, or perhaps even the otherwise normally brave! They are definitely not something you should put money into if you cannot afford to lose ALL of that money. Yes, it’s true you could find a stock trading at a penny per share and buy a million shares for $10,000.00. It’s true it could go up to a dollar and then you have a million dollars. It’s just not very likely, and even if it does happen, human nature is such that such a lucky person won’t consider themselves lucky. They’ll somehow imagine that they’re really smart, and they saw it coming, and they wait for it to double again, after which it tanks. This happens all the time. If you’re so inclined, you can read a scholarly paper about the correlation between winning the lottery and filing bankruptcy, which is a very similar mindset.
In any case, the bottom line is this: we all need to invest if we’re ever going to retire and maintain the lifestyle we desire. When we retire, it does not matter what we’re worth. Reread that if you like. No, I’ll just say it again. When we retire, it does not matter what we’re worth. What matters is how much cash we have coming in every month that WE DON’T HAVE TO WORK FOR. Right? Think about it if you need to, but you’ll have to admit that is what matters. If there’s enough coming in, whether it’s from Social Security or a pension (which very few people have anymore) or interest and dividends on your portfolio, then you can retire comfortably.
So, my clients invest with that in mind. My role is that of a coach or personal trainer who makes sure you understand how much you have to save and for how long, given reasonable returns much more modest and therefore much safer than penny stocks. It’s not really hard, but it is very emotionally charged, so please get yourself a professional planner to help.
Want to know more? Let’s talk, and create a plan that’s right for you and your family.
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