The risk of investing in penny stocks is you can quickly
lose all your money. The rewards in buying good penny
stocks could be great but penny stock buying is filled
with many risks. To avoid getting scammed by a bad
penny stock investment, here are some warning signs
to look out for:
1. Beware Of The Hot Stock Tip: Have
you ever received a hot stock tip by phone or email?
The promoter promised you fantastic guaranteed returns
on your hot penny stocks investment. It’s a
can’ miss investment opportunity of a lifetime.
The best thing to do is hang up the phone or delete
the e-mail. Chances are you’re being scammed
by a boiler room operation. These unscrupulous operators
scoop up worthless shares at fractions of a penny
and then attempt to sell them for a few dollars per
2. Penny Stock Trades In Unregulated Exchange:
Penny stocks that trade in an unregulated
environment does not have to meet compliance and reporting
requirements. Companies in these situations tend to
be of lesser quality. Stocks that trade in the OTC
and especially the Pink Sheet are to be avoided. Also
to be avoided are stocks that are sold over the phone
or sold directly from the company.
3. Erratic Trading Activity: If you purchased
a penny stock with erratic trading activity, it could
be very difficult to sell the shares. You could be
stuck with the shares for a long time since it’s
very hard to find a buyer.
4. Lack Of Reporting By Company:
When you invest in a company, you want to know what
you’re buying. To give you an idea, you need
their financial statements in order to properly evaluate
the company. If no financial statements are issued,
the company might have something to hide.
5. Company Hype: Be careful of companies
that constantly issue statements that highlights the
latest developments but provides no details on how
it helps increase revenue or profits.
6. Other Bad Penny Stock Clues: Here
are other bad penny stock clues to look for. They
include bankrupt company shares that are still trading,
have five letter ticker symbols and the share price
trade at fractions of a penny.