mike742 wrote:
- quote -

Oh, I don't think they should necessarily be regulated (any more than
they are already), I guess it sounded that way in my post. My point is
just that I look at the typical penny-stock company and think, if that
really was a valid business, why would it have gone public only to land
on the Pink Sheets? Tiny companies don't need much capital to operate
and function perfectly well as private companies, closely held by a
small group of shareholders. And the realities of being public are that
unless you have at least a microcap-sized market capitalization, and
trade outside of the penny stock range, you haven't really "made it". I
guess there are exceptions but to me those lists are full of companies
that went public prematurely, or to that went public at a reasonable
time but ultimately failed. And, of course, there are some shams taken
public by a boiler-room kind of firm, that don't have a prayer of going
anywhere.

The "next Microsoft" is more likely to be privately held until it gets
enough traction to get a fair-sized IPO, with the resulting pop &
significant raising of capital. Before that it's going to resort to bank
financing, venture capital, private equity. So most of the pink sheets
stocks are destined to stay there, trading ownership among those who
bother with them.

-Tad

I'd agree with much of what's been said, however...

- quote -

I'd strongly disagree that everything should be regulated into the
ground (or that someone else should decide what I can invest
or speculate in).

I'd also think that most people should NOT be in stocks at all.
Any of them. It shouldn't be necessary. However today
it appears to be necessary due to the poor value keeping
quality of the currencies. Inflation makes bonds/loans look not
just risky, but like a definite loss. So stocks seem "necessary"
along with their risks. But are they really sufficient?

This same problem causes saving (ie: not spending) to be
viewed with scorn too. And with just cause due to inflation.
Many people will have several million dollars pass through their
hands over a lifetime yet how many obtain wealth just by saving
this? Just about none since inflation eats it faster than it
accumulates.

What would you do with a million dollars? "Buy lunch"

Archie Norman wrote:
- quote -

Archie, a pump & dump isn't your biggest concern - you could avoid that
by tuning out recommendations. There are some much bigger issues with
them...

First, you have high trading costs that will be difficult to overcome.
The spreads are much wider, on a percentage basis, so you need a gain
just to break even. Imagine a stock with a bid/ask of $0.20/$0.22. You
buy for $0.22 and if the stock doesn't move at all, you would sell for
$0.20 - losing 9% of your money (plus commissions in both directions).
So you need the stock to move at least that much just to break even. Who
wants to buy something where the first 9%+ in gains vanishes to trading
costs?

It's worse than that though, because the markets for penny stocks
usually aren't very good, they have low "liquidity" (ability to buy or
sell at the current prices). When you go to sell you may find it
impossible to sell many shares at the current posted price. You might
put in an order and see it execute at a much lower price, or you put in
a limit order to avoid that - and it never executes.

And that's assuming you even know what the current price is, and how
many shares can be bought & sold at that price - you might not and for
some of the stuff on the Pink Sheets, well the best you have is a
(stale) estimate.

Beyond the trading problems, look to the companies themselves - what are
you buying? The penny markets are full of garbage - for lack of a better
word. You're buying shares in tiny companies that aren't subject to
financial reporting standards, that you can't find much information
about. I think there's a serious question about whether this kind of
company should be publicly traded at all. Sure, there are viable
companies in there but how to sort them out?

Stock investing is tricky enough as it is, why all these other risk
factors to it?

And to answer your question - in over 20 years of investing I've never
met someone who made money off penny stocks. Wait - I take that back - I
had a friend who actually worked for a pink-sheet listed company, I knew
the company, its offices were close by, they had a few valuable patents,
etc etc - I think I made a couple hundred bucks off it when they got
bought out. I'd call that luck though!

-Tad

Archie -

Assuming you are interested in making money in stocks, read "The
Intelligent Investor". It isn't that every penny stock is "bad" - just
that you have to be very careful and very diligent if you want to find
the rare tiny company that may end up making money. I believe the
majority of penny stock companies fail.

Someone years ago pointed out that Microsoft was never a penny stock.
It went public in 1986 at about $22.50 a share. Even ten shares ($225
dollars) would have turned into ... I don't really know, but I think
$100,000 is in the ballpark. MSFT is a rare company, but $5,000 in the
first person-to-person offering of Food Lion made the investors
millionaires; 100 shares of Berkshire-Hathaway and you'd be asking
about how to depreciate your cabin cruiser under California law; and it
is not vary hard to see that there are many companies that have
appreciated ten-fold in a lifetime. Fastenal, Express Scripts, Maxim
Integrated Products - just off the top of my head.

- quote -

My spam filters junk file two or three emails a day pushing penny stocks in
what is clearly pump and dump attempts. Each pushes a stock that is "set to
explode", "ready to take off", etc.

There was a recent posting here for a site that was peddling similar nonsense.

-- Doug

On Thu, 6 Apr 2006 04:00:39 -0500, Archie Norman <Archie.Norman[at]gmail.com> wrote:
- quote -

The risk is similar to owning larger stocks, namely that you would pay
more than the company is worth on the per share basis.

There is also comparatively less scrutiny of smaller companies, which
somewhat enhances their risk.

Also, the bid/ask spread on thinly traded stocks is higher and it is
more difficult to accumulate larger positions.

- quote -

I think that they attract their victims by finding people who would
take unsolicited investment advice. So, if you ignore unsolicited
investment advice (and avoid anything that is heavily promoted), you
would not become their victim.

i

Archie Norman writes:
- quote -

Probably the only ones that win in the penny-stock game are the stock
brokers and their friends.

- quote -

It is high.

- quote -

I'd suppose it is the same way many stock brokers find new customers:
cold calling.

Dave

There seems to be a great deal of risk in penny stocks, how many people
actually end up on top?

What is the danger of pump and dump operations? How do they usually
attract their victims?