PENNY STOCKS: Making Millions?

  To truly understand Penny Stocks one needs to understand the words used to define a Penny Stock. This will be an article of definitions, and then a few very important cautions.

I have made millions with Penny Stocks, including my own company. I see, however, that most people lose with this type of trading and investing. Investing is for a longer term horizon, say one year to 30 years. Trading is done with a short-term profit motive. Trading is for Cash Flow. The definitions begin.

Penny Stocks are not what people think, as least, their perception is not complete. These stocks are not defined as stocks that are in the pennies, or even a fraction of a penny. Penny Stocks are simply stocks not traded on a major exchange. This means these stocks are traded on the OTCBB (Over the Counter Bulletin Board) and/or the Pinks, better known as the Pink Sheets. Some Foreign Stocks are traded on the Pink Sheets, and they would not be considered Penny Stocks.

When a company goes public, it doesn’t have to be registered on an exchange—in fact it can be what is called a Form Ten Filed Company. Sometimes this is done through a “Reverse Merger.” This is done when a going enterprise merges with a filed company, and voila, the old company made new, is Public. This can be done in days and at a substantial lower cost than a typical registration. I bring this up here because many (most?) new Chinese companies trading here now were Reverse Mergers.

I invested in many start-ups. These were even before they went public and became a Penny Stock. They are what I call Rule 144 Companies. At least, the stock was Rule 144 stock. Many owners/founders own Rule 144 Stock. It is stock that is simply not registered. A lot goes into the process between the slip and the lip. If you’re not familiar with this process, and you’re looking at investing in such a company, seek out competent legal and accounting help—and a good dose of commonsense wouldn’t hurt. Let me know if I can be of service.

Many people tout penny Stocks. Be careful. Be Very Careful. They say that this new company, trading at 11¢ is the next Exxon-Mobil. They talk about the Billion Dollar industry the company is in, and even what other stocks they’ve been involved in, have done. If you read their prognostications, please read the disclaimer. You’ll notice that most of these PR campaigns are made by such firms. They are in it for the quick buck.

You may want the long term investment, so read their disclaimer, their cautions. You note that they are being paid in stock. Stop right there. If you don’t get that, slap yourself and run. Their payment is in stock and they can sell pretty much whenever they want to—or say when the company’s stock hits 25¢ a share. Rarely do they have any other restrictions on when they can sell. We call this, “Pump and Dump.” You will be the one who gets dumped on. I’ve seen this too many times to ignore. These companies approached me in my early years, and I would have nothing to do with them. Be leery of any Penny Stock company using one of these services.

NOTE: I wrote more on this, including Reverse Mergers, in my new book: 101 WAYS TO MAKE MONEY IN THE STOCK MARKET. Find it in the WIN BOOKTORE, at wininc.biz.

 

Stock MarketWade Cook