I am new to the world of penny stocks but have been trying to educate myself on it for a few reasons.
Firstly, I invested in a company that was not a penny stock when it IPO’ed but soon became one !! (fortunately I “doubled down” and am now back in the black); secondly, one friend and one business acquaintance have recently taken companies public, one on the Bulletin Board (BB) and one via a pink sheet reverse take-over; thirdly, my interest in mortages and securitisation have lead me to a BB listed sub-prime mortgage lender that I wanted to investigate further prior to seeing whether they were worth investing any of my time or money.
My current feeling is that back door listings, penny stocks are used by companies that can’t get a serious investor interested – so they try to get money by selling a story to un-educated investors who won’t ask difficult questions. I’ve heard stories about having stock to acquire companies, but shares are very expensive currency if you really do have a solid business.
I would love to be convinced that I’m wrong. Any takers?
by Josh
I’d steer clear of them.
I get a lot of spam messages touting penny stocks these days. Fortunately, Thunderbird catches them more and more.
by George
Like most investment vehicles, it would not be prudent to assume that BB listings are not appropriate for all companies.
Granted, we all get enough spam about “the next greatest thing” rendering BB stocks as attractive as fulfilling our voracious appetite for cheap viagra. However, many companies emerge from the Angel-investment stage only to stagnate in growth because they start to chase VC’s to help them get to the next round. Trouble is, VC’s are fixated on the one-in-a-million success story that will allow them to realize a phenominal return on a well-documented exit strategy.
The fact is, being a public, fully-reporting and trading bulletin board company, with strong documented progress and good share trading volume produces an comfort level with many investors as they look for an exit strategy to minimize their losses if things don’t go as planned, while still maintaining good potential when things do. You can’t do that with a private venture!
This being said, everyone should stay away from Pink Sheet companies that are non-reporting. The pinks are there for temporarily de-listed companies from the BB or major exchange only (due to late filing or other criteria), not to build any credibility as an investment. The reason why these ridiculous e-mail Spam campaigns keep working is because a few people can’t resist and buy into the hype.
Resist all temptation and invest only in fully-reporting companies where you can at least have an educated approach to your investment. The SEC is doing a great job in cleaning up these exchanges, and regulators in Canada are following as well.
To suggest, however, that this space is reserved for “un-educated” investors would not give full credit to the numerous solid investments and the many investors who put faith in the public markets.