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Q: What do you think about penny stocks? And what is a good discount broker to go with?
–A. Barnes, Via the Internet
A: Penny stocks are often small, early-stage, unknown companies whose stocks trade at less than $1 per share. Many people put stocks trading for less than $5 per share in this category as well. They are among the most risky investments in the stock market because: (1) finding reliable research for these companies can be difficult, (2) many Wall Street analysts don’t cover them, and (3) they often have unproven track records. Anyone investing in penny stocks should only invest money they are prepared to lose — they are that risky.
But you can reap a reward for that risk. Buying a high volume of penny shares at their low price can allow you to get in on the growth of new companies on the ground floor, when their share price is affordable. The challenge is to pick companies that will grow over the next 20 years.
The Over-the-Counter Bulletin Board (OTCBB) Website (www.otcbb.com) and www.all pennystocks.com can help. The OTCBB operates similarly to the Nasdaq exchange, regulating these small, early-stage companies. Its Website offers investor information, market statistics, and company profiles for research purposes. The AllPennyStocks site offers lists of penny stocks for you to research and also gives information on why certain companies deserve attention.
As for low-cost brokers, my choices are ShareBuilder (www.sharebuilder.com) for its low per-trade cost, ease-of-use, and stock research; and Scottrade (www.scottrade.com) for having 189 branches to give you access to real people and top-notch customer service.