Intro to Penny Stocks

To put it bluntly, penny stocks are shit.

To put it formally, it is the professional opinion of DakotaHale.com that penny stocks incur substantial risk while offering little in return, with the ones that do offer anything of value being too far and few between to be able to choose with such accuracy as to make penny stocks a reliable investment.

Penny stocks are usually defined as the stocks of small companies that you've never heard of, usually in the technology industry as a small startup, and always trading under $5 per share. But I like to define them as a waste of money.

Penny Stocks: The Hidden Tax on Beginner Investors

No one doubts that penny stocks could give a good amount of growth to any person's portfolio. We've all seen the social media gurus who claimed that by investing in one penny stock, they've earned 1000% returns on their investment or the fake news headers that read about how some dumbass in a town you've never heard of become a millionaire in two months by investing in penny stocks - while never telling you what the stock actually was.

I like to refer to penny stocks as a hidden tax on beginner investors because that's exactly what it is. Penny stocks attract beginners to them because of their supposed reputation as a "get-rich-quick" scheme when in reality they are a "get-poor-even-quicker" scheme. And unfortunately, the usual target is people new to the stock market who end up turning away from investing later on due to bad experiences choosing the most volatile stocks on the market.

The first stock I ever bought was a penny stock. The stock was SELLAS Life Sciences Group (SLS), an obviously dead company that was the victim of several Pump & Dump schemes every couple of months. I actually ended up profiting off of a pump and dump scheme and was one of the lucky ones.

I actually got the tip to invest in the stock from a Facebook group. Here's an even better tip: NEVER invest in stocks that Facebook boomers promote. Whenever someone promotes a non-Blue-Chip stock, take it with as much credibility as you would a sleazy car salesman with sweaty armpits trying to sell you a used Pontiac to meet his quota for the month.

To put it simply: penny stocks have extreme volatility, with few outstanding shares. That means even a small amount of people buying the stock is enough to drive the price up for them to profit. They're profiting off of your buying.

The Right Time To Buy Penny Stocks

This article isn't to scare the reader off of buying penny stocks. There is certainly a time and place for them, but they're definitely not for the faint of heart or beginner investors. They require much more research and effort to profit than typical stocks, and even then profit isn't guaranteed.

My best recommendation is to set aside a small amount of your portfolio for speculative investments – probably around 1-12%, and absolutely make sure it is money can afford to lose.