Top 4 Reasons Why 99% of Investors lose Money in Penny Stocks !

Top 4 Reasons Why 99% of Investors lose Money in Penny Stocks !





Top 4 Reasons why do 99% of investors lose money in penny stocks? Firstly let's understand the meaning of penny stock. What is a penny stock? Penny stocks are the stocks whose company’s market capitalization is very small, with little to no profits and minimal operations. The term penny stock is generally used interchangeably with micro-cap. Technically, micro-cap stocks are classified as such based on their market capitalization, while penny stocks are looked at in terms of their price. The main thing you have to know about a penny and micro stocks is that they are much riskier than regular stocks. Taking a penny stock is one of the riskier decisions that first-time investors often make. Four major factors make these securities riskier than blue-chip stocks. #1.Lack of Information. #2.No Minimum Standards. #3. Lack of History. #4.Liquidity. Make sure you look over any information the company offers, including its financials. Are these quality statements? If the company reports its statements on time and shows that the company is financially stable, it may point to a sound investment. Be sure to do some research on the company as well. Penny stocks aren't a lost cause, but they are very high-risk investments that aren't suitable for all investors. However, if you can't resist the small caps, make sure you do extensive research and understand what you are getting into. So here I have presented the brief of a penny stock through that you can see why most of the investors lose their money by investing in penny stocks. It requires deep knowledge and experience. Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. Please take a second to smash that like button. And as You know friends, I rely totally on your donations to keep this channel functional, as you know, it takes a crazy amount of research and time to bring you this content on a daily basis, so I hope you consider helping with whatever donation you can afford. Thank You. Successful companies aren’t born as such. They pass all the stages, as well as any other company. Unfortunately, some investors believe that the search for the next "big thing" means to sift penny stocks with the hope of finding the next Microsoft or Wal-Mart. It's probably not the best strategy. Below I’ll use the terms “penny stocks” and “stocks with micro-cap,” which are interchangeable. Technically, the shares of micro-cap classified by their market capitalization, while penny stocks are considered in terms of their value. Definitions vary, but in general, stocks with a market capitalization of between $50M and $300M are shares with the micro-cap (less than $50M are nano-cap). According to the Securities and Exchange Commission (SEC), any stock under $5 is a penny stock. Again, the definition can vary, some set the threshold at $3 while others believe that penny stocks only those stocks that are trading below $1. And finally, I believe that any shares are traded on the “pink sheets” or OTCBB are penny stocks. The main thing that you need to know about penny/micro-actions is that they are much riskier than regular stocks. For example, it is believed that junk bonds. (bonds with a rating lower than BBB) have a much higher risk than investment-grade bonds. (bonds with a rating higher than BBB). In the world of the penny, stocks are equivalent to a comparison of the shares with blue chips. What is the problem with these stocks? What makes penny stocks risky? You are faced with four problems when you decide to buy these stocks: The lack of information available to the public. One thing that I have always preached is that the key to a successful investment strategy is to get enough relevant information to make informed decisions. For stocks with a micro-cap information is much harder to find. Companies listed on the “pink sheets” are not required to submit documents to the SEC, and therefore do not attract the close attention of the public and are not regulated as the shares traded at the NYSE and NASDAQ exchanges. In addition, most of the information about promotions from the micro-cap, as a rule, not from a trusted source. There are no minimum standards. Stocks on the OTCBB and “pink sheets” should not perform the minimum standard requirements to stay in the trading system. That's why sometimes the stock is quoted in one of these trading systems. Once a company can no longer maintain its position on one of the largest stock exchanges, the company moves one of these small exchanges. While the OTCBB requires companies to promptly submit documents to the SEC, and “pink sheets” do not have such a requirement. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies. Lack of history. Many companies that are considered to be shares with a micro-cap or newly formed, or are close to bankruptcy. These companies usually have a little story or none at all. As you can imagine, the lack of history of the company only increases the difficulty in choosing the right stocks. Liquidity. When the stock has not much liquidity, there are two problems: firstly, it is likely that you will not be able to sell the share, which is purchased. If shares of low liquidity levels, it can be difficult to find a buyer for it, and you may be required to reduce the price, as long as it does not seem attractive to another buyer. Second is the low level of liquidity allows some traders to control the prices of stocks, which is done in different ways: the easiest way is to buy a large number of shares, to revive it, and then sell after other investors find it attractive (a method known as “pump and dump”). Penny stocks have been a thorn in the eye of the SEC for some time, due to the fact that the lack of micro-capitalization stocks available information and poor liquidity of these groups do share an easy target for fraudsters. There are many different ways in which these people will try to separate you from your money, but there are two of the most common: #1.Biased recommendations. Some companies with micro-cap pay people who recommended shares of the company in a variety of media, for example, in newsletters, on financial TV channels, and radio broadcasts. You may receive a spam e-mail that tries to convince you to buy a particular stock. All e-mails, messages, and recommendations of this kind should be taken with a grain of salt. Try to find out whether to pay the authors of these recommendations for their services as per hand bad investments and ensure that all press releases are not given falsely by people who want to influence the share price. #2.Offshore brokers. Commission’s regulation allows companies that sell shares outside the United States to foreign investors, not to register the shares. These companies tend to sell shares at a discount to offshore brokers who, in turn, sell them back to investors with substantial gains in the United States. Phoning on the list of potential investors (who have enough money to buy a particular share) and supplying them with attractive information, these dishonest brokers will use aggressive sales tactics to persuade investors to buy shares. Two common misconceptions regarding penny stocks consist in the fact that many of today's stocks were once penny stocks, and that there is a positive relationship between the number of shares held by the person, and his income. Investors who are trapped in the first delusion to believe that Wal-Mart, Microsoft, and many other large companies were once penny stocks that grew into expensive stocks. Many investors make this mistake because they look at the “adjusted stock price” that accounts for all stock splits. Looking at Microsoft and Wal-Mart, you can see that their price in the first trading days was $28 and $25, although prices are subject splits up $0.09722 to $0.02444. Instead of starting with low market prices, these companies actually started quite high and constantly growing until they were broken up. The second reason why penny stocks attract many investors is the assumption that there is more room for growth and more opportunities to buy more shares. If the stock is trading at a price of $0.1 and increased by $0.05, you make 50% profit. It’s coupled with the fact that you can buy 10,000 shares, convinces investors that the shares of micro-cap are the fast and sure-fire way to increase the return on investment of $1,000. For some reason, people think about growth but forget about the fall. $0.1 Promotion price could just as easily go down by $0.05 and lost half its value. Often these shares don’t grow, and there is a high probability that you will lose all of your investment. Of course, some companies on the OTCBB and “Pink Sheets” can be good quality, and many companies on the OTCBB are working very hard to pierce their way to the more authoritative the NASDAQ and the NYSE. However, the downside is that there are many good opportunities in stocks that are not traded for pennies. You must understand that this is an area of ​​high risk, which is not suitable for all investors. If you can not resist the temptation to share with micro-cap, make sure that you have done extensive research and understand what you're getting into. The reason why most investors lose money in penny stocks is that they don’t manage risk. Sure, that strategic hole is magnified by the inherent riskiness of the underlying assets (which you covered with an eloquence that I envy), but failure to manage risk is the key culprit. Many investors focus on returns, many investors trust in false profits (TA), and many investors over-manage their accounts. How often do “financial gurus” make statements like “penny stocks are short term games,” and “you have to concentrate wealth to build it?” I hear them all the time, and I think that they’re bogus, as they do nothing but increase fees and risks. As such, nobody should feel confident in an ability to pick penny stocks - ever. But the good news is that I’m finished with the bad news, and although it seems really bad, it’s actually not. If you’re watching this video about penny stocks, then, like a moth to a fire, you’re attracted by them, which suggests that the stocks do have some redeeming factors. Those redeeming factors are mouthwatering yields. Now the question becomes how to capture those impressive yields - which are there on the aggregate - all while avoiding the risks inherent in 90% of the stocks - all while managing costs. I believe that the answer to those questions is simple: #1. Admit that penny stocks go up on the whole - over a long amount of time and over a large spread, but few (if any) pick the time or the stock (irrespective of how much TA and other fake financial voodoo they do) #2. Admit that constant buying and selling eats into profits through taxes, commissions, bid-ask spreads (which tend to be wide with illiquid assets, like penny stocks), and so on. #3. Then marry those pieces together and build a wide, but shallow portfolio, and hold on to it as a long term investment. 70%-90% of the bets will probably bust, and the whole portfolio will likely have off years. But, over the long haul, the winners, who will win spectacularly, will almost certainly more than offset the (much larger) group of losers in a material way. And, as long as there isn’t over-trading (constant buy and selling), fees will be minimized. In the end, the portfolio will have ups and downs, but it will likely be too wide to completely fail (unless you do something crazy like over-lever), and it should see healthy returns (on the long run), despite being comprised of individually risky assets. (I told you the bad news wasn’t that bad!) The above is how I think penny stocks should be invested, and it’s why I think that saying 99% of people lose money because penny stocks are risky. Those individual risks can be managed. The real culprit is the failure to appropriately manage that risk. Don’t make trades in penny stocks without any advice. All the best. Happy trading!! This was The Atlantis Report. Please Like. Share. Leave me a comment. Subscribe. And please take some time to subscribe to my back up channels, I do upload videos there too. You'll find the links in the description box. You will also find a PayPal link if you want to make a donation. Thank you wholeheartedly to all those of you who have already donated. Stay safe and healthy friends!










Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.