Benjamin Wey is a journalist and a Wall Street financier, CEO of New York Global Group. A graduate of Columbia University with his 2nd master’s degree, Benjamin Wey is a senior adviser to government entities and businesses. Mr. Wey shares his thoughts about marketing and operational management issues with our readers. Photo: Financier and journalist Benjamin Wey.
Financier Benjamin Wey asks the same question: Have you ever seen a banner ad that says something like “The Next Huge Penny Stocks — Make Million$!!!!” in your browser? I’d venture to say that you have and, hopefully, you didn’t click on it. No one has ever said, “Hey, did you hear about Bob? Yeah he clicked on the penny stock banner ad, you know the one that says ‘Get Rich on Penny Stocks, Stupid,’ and made a million dollars. Yup. He also found several hot, local girls who were waiting for his message using the same strategy.” Despite the spammers and scammers, there are actually some people who have made money investing in penny stocks. So the question is, should you? Most financial advisors would most likely tell you no — or more accurately, “No. God bless people like you for allowing me to make a living.” [Pats you on the head.] But it is counterproductive to the concept of investing to completely discount any investment. Here’s my take on penny stocks.
The exact definition of “penny stock,” also known as “pink sheet stocks” and “over-the-counter stocks,” is somewhat muddled. The SEC considers any stock trading under $5 a penny stock. But it is widely accepted that a penny stock is any stock that is traded over the counter instead of on exchange like the New York Stock Exchange or even smaller exchanges like the National Stock Exchange. But as a very simple definition, which you may have gathered from the name, penny stocks are cheap stocks.
They aren’t listed on exchanges because they do not meet the requirements. Also, they are usually emerging companies and are risky to trade because they are relatively volatile in many cases. A blue-chip stock (which is a top-notch, established company) like IBM with a market cap (total value of shares issued) of $266 billion isn’t going to fold after a bad week and leave you holding nothing, simply because they are worth so much. With penny stocks, this is a very real possibility. This makes penny stocks more enticing to traders, who invest in the short term, than investors, who invest in the long term.
For example, a trader could buy 10,000 shares of Abe’s Corp. penny stock for $.30/share in hopes that it will have a good day and rise $.03-.05 cents and quickly sell it off for a few hundred dollars profit. That is pretty much the only way you will make money on penny stocks. If you are buying a few hundred shares of cheap stock in an emerging company in hopes that it will become the next Google, you’re bound to be dissapointed. You’d have a better chance finding single girls on the banner ad.
There is a reason the stock in these companies is so invaluable: you get what you pay for, if it sounds too good to be true, it is, etc., etc. Of course, it is possible that the experts and everyone else in the entire world overlooked a promising company, forcing it to trade over-the-counter for pennies, but it’s very unlikely. Penny stocks are also known for being used in illegal pump-and-dump schemes. This is where a stock is pushed to investors, inflating the price even though the company is a junker, and then the people behind the scheme sell their stock when it is at its peak before the world realizes what a terrible investment it is. Often times the dump itself causes the stock to crash. This is also relatively rare and it is more likely for a penny stock investor to be legitimately taken for money because the company they invested in is simply not a good company.
Here is the bottom line from investment expert Benjamin Wey – So if you think penny stocks are for you, trade them in the short term. Don’t think you’re going to pick up a winning lottery ticket for pennies on the dollar because if you know about it, the experts knew about it six months ago and it wouldn’t be trading for pennies. Hey, maybe you can be the next guy to turn $500 into $500,000. But I think you would be better off rolling pennies than investing in them.