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Trading Penny Stocks

Trading Penny Stocks

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Published by hboyd
Very AmazingTip: http://tinyurl.com/mypennystocks1
Very AmazingTip: http://tinyurl.com/mypennystocks1

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Published by: hboyd on Jan 30, 2012
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01/30/2012

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 ==== ====Make Serious Money with Penny Stockshttp://tinyurl.com/mypennystocks1 ==== ====Amazingly enough, a number of American financial sector stocks were thrown into penny stockrealm in the past two weeks. In the past few months, even bigger banks declared bankruptcy. The SEC defines penny stocks as "low-priced (below $5), speculative securities of very smallcompanies. While penny stocks generally are quoted over-the-counter, such as on the OTCBB orin the Pink Sheets, they may also trade on securities exchanges, including foreign securitiesexchanges. In addition, penny stocks include the securities of certain private companies with noactive trading market." By this definition, the financial sector stocks like Citibank and Bank of America, are penny stocks. Last fall, the SEC took the unprecedented action of banning short sales and calling for a shortcover on financial sector stocks that taken a beating by the shorts. It's a lament that penny stockcompanies have been complaining of for years, but went unheeded. And now these established, down-on-their-luck financial companies have convinced the Americanpublic that they are deserving of billions in taxpayer dollars because they are establishedcompanies and not traditional penny stocks as defined by the SEC. So what have we really done for these behemoths? We've altered the definition of penny stocks toaccommodate them. We've altered the level playing field by exempting them from short sellers.And now we're giving them tax dollars like some government sponsored clinic while hard workingentrepreneurs have to fight for their place in this shrinking economy. Are these billion dollar bailout babies really that different from your traditionally defined pennystock? Traditionally, risk characteristics attributed to penny stocks include: 1. Penny stock companies are usually start-ups that lack of information about the company, itshistory and its management. I would argue that financial sector companies suffer from the samelack of transparency. After all, how could anyone not see the leverage and the misguided assetclassifications and still invest in these behemoths? The derivatives are way too complicated for thelayman to analyze. So we rely on the banks to tell us the truth, while they have a conflict. 2. Large control blocks. Penny stock company founders traditionally have a large block of stock(albeit restricted) to ensure their interests are aligned with the rest of the shareholders whileensuring they cannot sell their shares for a quick profit at the detriment of other shareholders. Inthe financial sector, these large blocks are held by fund managers who similarly cannot sell their
 
blocks quickly without lowering the market price and thereby impairing the return to themselves.What's more, the CEO's of the companies barely have any stock in their portfolios, eliminating thealignment with shareholder values. Instead, it's become vogue to pay these CEO's via stockoptions, giving them an incentive to show short term results and then cash out their options whilethe rest of the investing public holds shares that were sold by insiders. This is done by using unwitting brokers, paid analysts and unquestioning media to tow thecompany line. And because the CEO's and the companies have been held in high esteem, no onequestions the use of these tools or their motives. Penny stock companies often use similar tools. Only with a penny stock it's called stockpromotion. And penny stock companies have better motives: without stock promotion, the bestcompany in the world won't be worth anything because no one would have heard of it - andtherefore the enterprise would be hard pressed to raise money for growth. Promotion should be adriving investment criterion for choosing a penny stock. The issue with promotion is that the SEC often believes that stock promotion involving a pennystock needs more supervision than the promotion being conducted by billion dollar house holdnames. Is there in fact an opportunity for fraud in the penny stock market? Of course there is. But I contend that the risk is much higher with well established companies that have CEO'sholding stock options (big motive for early liquidation since options expire) rather than actualrestricted stock (unsellable) for which they actually paid (as many penny stock companiesexperience). Empirical proof is offered by the billions lost in the financial sector right under thenose of, and with the blessing of the SEC and other regulatory bodies than has ever been lost onpenny stocks. 3. Penny stocks are often accused of being used by scam artists who sell them through spamemail or off-shore brokers. As the recent IRS/SEC probes have proven, many, many, manyAmerican CEO's have offshore accounts making them no more honest or dishonest than theoperators of penny stock companies. Both traditional penny stock startups and the fallen as exemplified by the financial sector have thepotential for growth and for fraud. Both are blighted by cash requirements, by short sellers and byimage problems. The difference is that the fallen companies have the government and SEC fighting for them whilethe typical startup penny stock company is vilified. The dichotomy is even more surprising whenwe stop to think that economists have long been telling us, and the American experience has longproved that the start-up is what drives the economy, diversifies the job base, creates the most jobsand is lean enough to take advantage of changing times. So I ask you America: Are all Penny Stocks Created Equal? [http://www.pennystockjockey.com] 

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