Penny Stocks....

Unable to trade today I again missed out on a lot of shorts. The trading seems to be lacking lately, but still interesting to see it being so volatile. Anyways if I am unable to talk about the present I might as well take a step back into the past. History can be such a valuable lesson.

Around beginning of February '08 I scanned on a stocks screener website for the biggest gainers of the day. I stumbled upon stocks that had a +30% change in one day and thought it was definitely a gold mine. The stocks were cheap too, really cheap. Then I thought to myself, if I put $10k in one of these, I might get a $3k profit just in one day. I then went around websites after websites to see if I could find a stock that I knew could move up the following day.

I picked two stocks the following day and traded over $22k on both of them. Sadly I had to learn the hard way of what I was investing in. Penny stocks. Never would I have imagine I would loss over 80% of the $22k in less than two weeks. I went and did some research after the losses and learned that most penny stocks, about 99.9999999999999% of them are always bad investments. The main reason is because they don't follow the regulations such as NYSE and Nasdaq. Instead they are traded on the OTCBB. It stands for Over The Counter Bulletin Board.

The OTCBB is not as stringent as either the NYSE and Nasdaq when it comes to trading hence there are a lot of scams. One of the best websites to determine if a penny stock is a scam is stockgumshoe.com. The site is magnificent when it comes down to figuring out what stocks are truly worth investing and which ones are scams.

At the time my losses out weigh my gains by almost 10 folds! Yes, I had lost more than $25k in a matter of weeks, not months. February was also the time when I got my margin account approved, but was flagged with a free-riding violation. I was desperate to figuring out a solution, but was unable to for my losses kept piling.

If there was a silver lining to this is the fact that I will never, never trade a stock below a penny. By far the worst type of investment one can make in the stock market. I advise anything under a penny is not worth investing. Even if there are days where gains can go as much as 500%. Like the old sayings goes, "if its too good to be true, it probably is."

I will not disclose the penny stocks I traded because I simply don't want publicity on them. Yet I still hold one of them with over 85% loss from my original purchase price. To be truthful the main reason I am holding is because I am being optimistic. Hoping that the stock will rise back to the price of when I purchased it. Probably will not happen though. In either case, I also get the benefit of a remember of not to trade penny stocks when I see my portfolio. The 85% loss hurts, but I won't make that mistake ever again when I see -85% every morning.