Penny Stock Companies

Stocks from penny stock companies offer a unique challenge to the would-be investor. They are high-risk and highly speculative investments. It is true that a penny stock company may have the potential to reach the same status as any well-known, highly profitable company. The company may be well-run and offer wonderful products. Owners may follow carefully crafted financial procedures to make sure that the company has every chance of succeeding. However, it is still possible (and probably even more likely) that another bigger, better-financed company may attempt to muscle in and overcome the smaller company by using its own network of finances, connections and experience to put its competitor out of business.

To make matters even more complicated, there is no final agreement as to what constitutes a penny stock. Penny stocks are generally considered to be those which trade at $5 or less -- although some traders believe that these stocks have a benchmark of $3 or even $1 a share. At any rate, these stocks usually trade at a relatively low price, with little capitalization, and are traded outside of the major market exchanges. This usually is because the penny stock companies can not meet the listing requirements of a major exchange. Instead, these stocks are traded on a dealer network.

Some consider penny stock companies to be any company whose offerings appear on the 'pink sheets'. The pink sheets (so called because they were originally actually printed on pink paper) are a daily list of the bid and ask prices of these 'over the counter' (OTC) stocks, and the market makers who trade them. Pink sheets could also refer to over the counter trading in general, using other financial instruments, such as debt securities. The stock symbol will have ".PK" as part of its designation. Another source for trading and information on penny stocks is the Over The Counter Bulletin Board (OTCBB). This exchange is also not part of the NASDAQ exchange and the stocks will have the designation ".OB" as a suffix on their names.

These penny stock companies offer stocks which are not very liquid. Investors may hesitate to pursue investments with companies whose stocks are not often traded, and thus have larger bid-ask spreads. It is also relatively hard to research stocks whose following and history are limited. Few of these companies will be able to reach the status of the stocks which are traded on the major exchanges. Penny stocks are not subject to many of the filing or regulatory requirements which must be met by stocks traded on a major exchange. This could be considered a positive or a negative factor, depending upon one's investment strategy.

One thing which a person should consider before investing in penny stock companies is whether the stock is truly viable. How can this be determined if the stock is not subject to filing information with the Securities and Exchange Commission (SEC) or if there is little trading history available? On what basis can the investor compare the stock with its peers in the industry? Also, even if someone has done an article or comparison of the investment with other stocks, be careful to note that the writer may have a vested interest in promoting a certain stock. Perhaps he owns some of the stock himself, or is being paid to write true but overly positive information by an investor relations firm. Stockbrokers, newsletter publishers and other Internet information sources each may have a particular slant on a company's worth -- and a particular reason for coming to this conclusion. As the Bible says in Proverbs 20:6, Most men will proclaim every one his own goodness: but a faithful man who can find? Let the buyer beware.

No doubt this is one reason why the US Securities and Exchange Commission website has a whole section devoted to information for online investors. All investors, whether they be interested in penny stock companies or stocks traded on major exchanges, would be wise to read through these articles before engaging in online trading. It seems that it must be quite difficult to determine whether offers from penny stock companies are legitimate opportunities to make money or are merely clever frauds. Whether the stocks are from dealer networks or major exchanges, try to learn as much as possible about the company, its philosophy and its products and practices before investing. Keep in mind that it may be more difficult to find buyers for penny stocks. While dreaming of massive returns on the investment, be prepared to accept a long wait or even a total loss without undue regret. If this is not possible, perhaps another avenue of investment would be more appropriate. Do not invest monies which will be needed for monthly expenses in penny stocks, as losses are not only possible, but likely.

The Bible is a trustworthy source for obtaining principles which can help an investor develop a blueprint for personal financial management. Of course, care must be taken so that verses are not wrestled out of their original context in order to arrive at the desired conclusions! As a whole, though, diligence, hard work and generosity to those in need are foundational to a biblical perspective on money matters. Wealth gained from penny stock companies or other investments should be used to further the purposes of God's kingdom rather than merely for selfish pursuits. Unlike penny stocks, treasure in heaven is always a sure investment.