Hartley Bernstein’s guide to penny stocks

Penny stocks have been around for a long time. But many people still have not gotten used to them. These inexpensive stocks are still categorized as something out-of-the-norm. In this blog, New York-based corporate lawyer Hartley Bernstein explains penny stocks in the layperson’s terms.

What is a penny stock?

Penny stocks are those stocks that can be bought for incredulously low prices. I know what you are thinking - how low is low? This is a good question. A million dollars may be a “low” amount for Bill Gates or Warren Buffet, but for an ordinary American in New York, it is a fortunate. In other words, the definition of what is a penny stock is not fixed but it evolves with markets. A few decades ago, stocks that were traded for less than one dollar were classified as penny stocks. Currently, any stock that you can buy or sell for less than five dollars falls into this category.

Origin

When the term penny stock was coined, these stocks were traded for less than a dollar - pennies. Although today they are traded in dollars, they are still called penny stocks because the investors’ attitude toward them has not changed. They are treated as penny stocks.

What differentiates penny stocks from other investments?

Hartley Bernstein opines that the biggest factor differentiating penny stocks from other stocks is the risk involved. Penny stocks are high risk investments. They are usually traded on Pink Sheets and other places that are more open to manipulation. Penny stocks are usually issued by companies that are either new or hard on cash.

Should I invest in penny stocks?

Hartley Bernstein’s advice is - be careful because the chances of a scam are very high.