I believe most people know what stocks are. A stock’s price multiplied by the amount of outstanding shares represents the value of the company. A company’s worth can be characterized by total assets minus all its obligations. Stocks may be more or less profitable, according to the company’s efficiency and ability to return to profit for every dollar that was invested in it.

Publicly traded companies are traded on three major exchanges like the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) or American Stock Exchange (AMEX). Even though quite few penny stocks are traded on these exchanges, most of them are traded on the OTC:BB (over the counter bulletin board, also known as the pink sheets.

Potential to make incredible amounts of money in a relatively short period of time, indeed, is one of the most attractive factors that attract investors to penny stocks. Because decreased listings, any change in prices can lead to one hundred times the initial investment. Some people can become rich overnight if they make the right choices.

Moreover, there is also the possibility of losing money. Penny stocks can also go down 50% or more in just one day of trading. Which is why you need to do even more research onto the company before making any investment. Unlike the big stock exchanges, stocks traded on the OTC:BB don’t require to do the same types of quarterly reports as the others. Another issue to be aware of is the fact that most penny stocks don’t have any analysts following the company to really get an idea of what they are up to. Of course you can call the company’s public relation department to get some answers, but then again you have to remember that the person you’re talking to works for the company and may exaggerate the company’s performance. As the old saying goes… Let the buyer beware.

As with other high-risk investment vehicle, penny stocks offer high leverage for the investors. A small amount of increase of the price of the stock can make a good amount of money for the investor. It is also very important for the investor to be willing to sit on the stock for a long period and view this investment as a long term gain.

Penny stocks are any stock that trades below $1 per share or sometimes below $5 per share. The shares generally fluctuate in value. Therefore, it is important the understand the movement of its price not only by using technical analysis but also by using fundamental understanding of the company’s assets, growth, and direction.

I would recommend that someone interested in investing in penny stocks would ask assistance from investment advisers. A good way to do it is to subscribe to investment newsletters offering investment advice. Be cautious though in choosing the newsletter that you would subscribe to. If you are on the lookout of a good investment newsletter here are some tips for you:

1. The company offers 24/7 customer service
2. The customer service representatives are friendly, courteous, and professional
3. The editors answers your inquiry either by mail, email, or fax (most editors won’t answer your questions via phone because they are constantly looking for good stocks to recommend)
4. they have good winners to losers ratio in their portfolio (6 winners out of 8 open positions is really hot)
5. And the company provides you access to the company’s model portfolio when you ask for it.

There are so many investment newsletters out there, but if you want excellence, you may want to consider the tips above.

However, if any of these companies hit it big, their shares go up a ton and that makes the original investors big dollars. The term return of investment is a word tossed around used to show how much you get on your investment. The best performing stocks in the past decade have been penny stocks. Penny stocks start low and when they get to be a few dollars per share, that is huge profits since the percentages are so high (some into the thousands time the starting price).

Cheap stocks provide for large potentials but large losses since there is a ton of risk. Anyone can invest in a safe company like a Microsoft or Google by buy stocks online, but those are expensive and barely go up, but are steady. Penny stocks are one of the easiest ways to lose money. Everybody is looking for the best penny stock investment hoping to make money. You run into a ton of pump and dump techniques, where someone boasts about a stock, waits for an increase in price, and then sells all of theirs. Penny stocks are actually not that liquid and are very tough to gauge.

The prices of the stocks are almost actually never affected by what the company does, but what the market does. There are some penny stocks that can do well, but extreme research is needed. One must look at the financials of a given company to really see if the company has profit potential. One of the biggest things to look for is liquidity and assets, meaning having lots of cash, with almost no debts. Finding this is just about as rare as finding a penny stock that hits it big. Anyone can invest in penny stocks, but the risk is so great, it really is not even worth it. You may even have a better shot winning the lotto.