Problem With Good Penny Stocks that “Never Fail”

Everyone wants to find good penny stocks that are on the verge of making a several hundred percentage point return over a short time period. Looking around for the hottest penny stocks and buying them may have a high potential, but it really doesn’t have good odds.

There are 7 major problems I see with going out and buying the hottest penny stocks around and hanging onto them just because they are cheap.

1. Most Are Bad Investments

Most stocks that are trading for less than $1 (my definition of a penny stock) are trading at that price because there is no demand for them. Not many big investors are willing to put their money into a company that is losing money and on the verge of bankruptcy.

Unless there is some unforeseen event that has the possibility of changing a company’s direction they will most likely end up losing money for their investors.

2. Very High Risk

They are normally high risk. Now there may be stocks that have the possibility of taking off for whatever reason, but regardless of how sure you are about a company, every penny stock investment is a gamble, which leads us to reason number 3.

3. Gambler Mentality

Perhaps the biggest problem I see with penny stock investing is that it comes with a gambler mentality. The idea is to buy a stock for $.03 and if it goes up all your dreams will come true.

This is the same thing as buying a $1 lottery ticket or putting all of your money on number 32 in Rolette. The possibility is enormous, but it is far more likely that you will lose the money and all and all you are playing against the odds.

How many people can honestly say that they make more money from slot machines then they lose? Not many. You don’t get something for nothing. The world just doesn’t work that way.

4. Divert Attention

No get rich quick scheme that I know of will make you a millionaire overnight with little to no work. Looking for a list of the hottest penny stocks around and diving in will also not work out for most people.

What it will do is divert your attention away from how to become a better trader/investor. Real wealth is not made overnight off of a penny stock gain, but instead after years of implementing and improving your ability to use proven market strategies such as chart patterns and financial ratios.

Over the long term the person who is willing to learn and grow will outperform someone else looking to skip the growing process and get what they want now for little or no effort.

5. Scams

There are a lot of places out there which will tell you that they know how to find good penny stocks and that they can even give you a list of the hottest penny stocks around for a small fee, or sometimes even for free.

And while there may be some groups out there which are actually somewhat viable, the vast majority of penny stock guru’s are into some sort of scam. Whether it be manipulating penny stocks by getting people to buy them or whether it be simply taking your money and giving you a bogus way to find good penny stocks.

The bottom line is this, the penny stock industry is filled with a lot of scams, so why not move on to some other way of building wealth that you know is more solid.

6. Not Just Start Ups

A lot of people seem to think that good penny stocks are just start up companies that haven’t gotten their big break yet. Well that is not always true.

They also include; companies that were bigger, but due to management or unforeseen circumstances shrunk and they include companies that are starting up but are unlikely to go anywhere because their owners are new to the game and have not yet realized how to run a company.

7. Lack of Penny Stock Success Stories

I get things in the mail all the time telling me about how their hottest penny stocks picks make amazing gains overnight and that their average pick goes up 450% in 5 days. Well, if that’s true and it is really possible to pick good penny stocks that will skyrocket where are all the people doing it.

It doesn’t take long making 450% a week to become a billionaire, yet I have not heard of any penny stock billionaires. I have heard of many billionaires who got that way through trading stocks using fundamental and technical indicators, but I have yet to hear of someone who wasn’t self proclaimed to have made a vast fortune off of the stock market by buying good penny stocks for cheap and selling them for more later on.

Conclusion

My Conclusion is that penny stocks do have a real potential of being profitable. But I wouldn’t count on them making you rich beyond your wildest dreams any more then I would count on the winning the lottery. You just don’t get something for nothing; it takes some effort on your part to reach your goals.

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