{"id":1468,"date":"2022-03-23T16:10:57","date_gmt":"2022-03-23T16:10:57","guid":{"rendered":"https:\/\/microcapspot.com\/?p=1468"},"modified":"2022-03-28T00:11:46","modified_gmt":"2022-03-28T00:11:46","slug":"top-reasons-to-avoid-penny-micro-cap-stocks","status":"publish","type":"post","link":"https:\/\/microcapspot.com\/top-reasons-to-avoid-penny-micro-cap-stocks\/","title":{"rendered":"Top Reasons to Avoid Penny & Micro-cap Stocks"},"content":{"rendered":"\n

Penny & micro-cap stock investing is not for the faint of heart. In fact, the majority of inexperienced investors end up losing tons of money. If it is too good to be true, it likely is. Never make an investment based on hype unless you mentally prepared to sell quickly and lock in profits. <\/p>\n\n\n\n

Learn it from a pro who lost his money when I first started. Yup, from hero to zero. I\u2019m going to try to convince you why not to invest in these high-risk stocks. <\/p>\n\n\n\n

\"man<\/figure>\n\n\n\n

Remember in the investing world, appearances are quite deceiving (at least majority of the time). Your stock may skyrocket at first. However, the next minute you lose your shirt, shorts, and shoes in the blink of an eye. Just like that, your savings is wiped out. So the key question is how does this happen? <\/p>\n\n\n\n

1. Fraud<\/h2>\n\n\n\n

Top on the list of reasons not to invest in penny & micro-cap stocks is fraud. It is much easier to cook the books because there are far less stringent requirements on the exchanges these stocks typically trade on. Therefore, many of these companies don\u2019t have an external auditor, post financial reports, or hold conference calls. There are few analysts following the company as well to raise red flags to investors. <\/p>\n\n\n\n

2. Pump and Dump Schemes<\/h2>\n\n\n\n

Micro-cap stocks that show big gains in a short period are due to pump and dump schemes. The company, insiders, or investors typically will pay stock promoters to create excitement and buzz around the company. Stock promoters send emails to their subscribers who in turn buy shares of the company causing the price to increase quickly. Next, the company or insiders sell shares for a profit. After this, the stock price usually plummets and the scheme leaves inexperienced investors wondering what happened and how they lost their money. <\/p>\n\n\n\n

3. Price Manipulation <\/h2>\n\n\n\n

Penny and micro-cap stock manipulators buy lots of shares of the stock with a low share float. The manipulators make sure to purchase the stock over a long period of time so it doesn\u2019t cause the price to spike. Next, they hold the shares as the price increases so there are no sellers causing the price to increase quickly. Finally, the stock manipulator will sell his or her entire position.<\/p>\n\n\n\n

4. Low Volume  <\/h2>\n\n\n\n

Often penny and micro-cap stocks only trade a small amount of shares every day making it hard to exit your position. Lets say a stock is trading at $0.01 and 10,000 shares are traded per day. This means $0.01 x 10,000 = only $100 worth of shares are bought and sold each day. If you had bought $1,000 worth of shares it would take you about 10 days to sell all of yours shares. Stick with high volume stocks so that you can easily exit your position if needed. <\/p>\n\n\n\n

5. Limited Public Information <\/h2>\n\n\n\n

Stocks listed on lesser exchanges have significantly less reporting requirements. Therefore, it is likely that the stock won\u2019t even post quarterly or annual financial reports. This makes it difficult to find information on the company or the health of the company. In addition, it is highly unlikely the company will hold quarterly conference calls. It can be very difficult to do extensive research on a company to determine its potential to succeed. You can use a <\/a>micro-cap stock screener<\/a> to help weed out companies that aren\u2019t profitable or post little information.<\/p>\n\n\n\n

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