loader from loading.io

105: Penny Stocks: Buy In or Beware?

Wealth by Design

Release Date: 02/25/2020

MINISODE: Hurricane Hiatus - An Update on the Wealth by Design Podcast show art MINISODE: Hurricane Hiatus - An Update on the Wealth by Design Podcast

Wealth by Design

Hello, loyal listeners! We wanted to let you know that we have a quick update on the podcast and a few things that are happening over at Toujours Planning right now. As you may know, we are a Lake Charles-based business and family, and our community, homes, and offices were devastated by Hurricane Laura in August.

info_outline MINISODE: Do You Need a Financial Advisor or a Certified Financial Planner™? show art MINISODE: Do You Need a Financial Advisor or a Certified Financial Planner™?

Wealth by Design

Do you need a financial planner? A financial advisor? An investment professional? A money coach? And what are those initials after their names?!

info_outline MINISODE: Are You Falling into This Stock Market Trap? show art MINISODE: Are You Falling into This Stock Market Trap?

Wealth by Design

In this minisode, Dustin breaks down the Sir Templeton’s quote: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”. He also discusses timing the stock market, why it’s a bad idea, and what you should do instead.

info_outline MINISODE: Should You Have a Joint Account with Your Partner? show art MINISODE: Should You Have a Joint Account with Your Partner?

Wealth by Design

We’ll keep the intrigue to a minimum. In our opinion, the answer to this question is a resounding yes. Sharing your finances with your partner builds trust. Keeping them separate can breed suspicion and worry.

info_outline MINISODE: When Stock Markets Dip and Bounce Back show art MINISODE: When Stock Markets Dip and Bounce Back

Wealth by Design

In this minisode, Dustin recaps what a stock actually is and how stocks are bought and sold. He discusses how people’s emotions cause those peaks and valleys in the stock market, and how you can avoid that dangerous herd mentality when it comes to your own investing.

info_outline 112: Growing a Business & Wealth with Katell and Jon of Reverielane show art 112: Growing a Business & Wealth with Katell and Jon of Reverielane

Wealth by Design

Katell and Jon, a husband and wife design team, are founders of Reverielane, a purpose-driven brand and web design firm.

info_outline [Summer Remix] 102: Net Worth is King show art [Summer Remix] 102: Net Worth is King

Wealth by Design

We talk about fear a lot on our podcast. Fear is natural and, TBH, necessary. But fear can also make you focus on the wrong thing when it comes to your net worth. Paying down debt rather than building up your assets, to be specific. And that’s what we discuss in this week’s episode: where our fear of the “debt boogeyman” comes from, our three-step strategy on how to overcome it, and what part of your finances you should be focusing on instead.

info_outline [Summer Remix] 101: Robo-advisors: Your New Best Friend or Your Worst Enemy? show art [Summer Remix] 101: Robo-advisors: Your New Best Friend or Your Worst Enemy?

Wealth by Design

The robots have taken over. Just kidding. But, they have taken over a major chunk of the financial industry in the form of robo-advisors. But the truth is, we think robo-advisors are actually pretty useful. Of course, there’s a time and a place to use them, which is exactly what we cover in this episode of Wealth by Design.

info_outline [Summer Remix] 100: High Yield Savings vs. Stocks: Who Wins? show art [Summer Remix] 100: High Yield Savings vs. Stocks: Who Wins?

Wealth by Design

There are a lot of misconceptions about investing in the stock market, thanks to fear-mongering in the news, horror stories from family and friends, and a lack of education about the stock market in general. Your fears may also be why high yield savings seems like the better option for your money. In this episode, we talked about the differences between high yield savings and stocks. We know you’re probably a big fan of saving because it’s “safe,” right? Well, we’re about to rock your world.

info_outline [Summer Remix] 98: Leaving Behind the “Punch Clock” Mindset show art [Summer Remix] 98: Leaving Behind the “Punch Clock” Mindset

Wealth by Design

The concept of a punch clock — punching in to start a shift and punching out when it ends — is ingrained in many of us, even as business owners who write our own checks and make our own schedules. But it doesn’t have to stay that way! On this episode of Wealth By Design, we talk about how you can start changing your mindset and your life right now.

info_outline
 
More Episodes

Have you ever heard about penny stocks? Are you wondering what they are and if you should be getting in on that action? We’re covering everything about penny stocks in this episode of Wealth by Design, so buckle up.

Warning: we do not shy away from our opinions about penny stocks in this episode!

 

WHAT YOU’LL LEARN

  • [01:20] What is a penny stock?

  • [03:01] How Dustin was introduced to penny stocks

  • [06:10] The reality of Dustin’s dot com story

  • [08:19] Common misconceptions with penny stocks

  • [09:54] The type of investment strategy you should have

  • [10:34] Why penny stocks exist

  • [12:10] All about pump and dump scams (yes, like in The Wolf of Wall Street)

  • [14:22] Our final verdict on penny stocks

 

What Are Penny Stocks?

Penny stocks, as their name implies, are stocks that trade for less than $5 per share. You’ll find lots of penny stocks that cost less than a dollar or even less than a penny. Of course, that’s part of their appeal. These cheap stocks seem attractive when compared to companies that trade at much higher amounts. But you may have heard people (or “influencers”) talking about how they’re making money fast on penny stocks and you may be wondering if you need to get in on the scheme. We’re here to talk you down.

The Draw of Penny Stocks

In this episode, we mentioned the “viral” factor when it comes to penny stocks. It might seem like everyone around you is talking about a specific penny stock and making money on it. Eventually, you start to feel the pressure. Should you become a ground floor investor? Will you hit it big with this underdog company?

It’s natural to feel that adrenaline rush when you think you may have discovered a “diamond in the rough,” as we described it. But we’re going to play devil’s advocate for a moment and bring you back to reality. A good long-term investment strategy should never make you feel pressured into buying anything. Investing should never feel like a potential lottery win. You want an investment strategy that’s stable and disciplined, not one that’s volatile and hard to research. That’s what penny stocks are, however, and those are huge red flags.

If you hear your friends, coworkers, or acquaintances talking about “the next big thing” in stocks, be wary: it might be a pump and dump scam. (You may have heard of pump and dumps in 2013, thanks to The Wolf of Wall Street movie based on the real-life Wolf of Wall Street, Jordan Belfort.) Be on the lookout for penny stocks that seem like they’re on fire at the moment. That’s a pretty good sign that they’ll burn out quickly, and that they’re actually worthless. 

How Penny Stocks Actually Work

We hear you wondering: “If penny stocks are so unpredictable, why does anyone even invest in them?” We’ve already talked about why people might take a chance on penny stocks: the FOMO, the rush of adrenaline, and the desire to feel like you’re a ground floor investor in an underdog company. Now let’s look at the company side of things.

Penny stocks are not arbitrary. They may be companies that have failed and are now actually worth pennies. Companies that have failed but still have some type of worth tied up in their business, like tons of land, for example. On the other hand, companies may start out as penny stocks, which can be even worse! 

Companies who start out as penny stocks can manipulate their price purposefully to skirt regulation. Penny stocks are called “over-the-counter stocks” since they don’t trade on a regulated exchange, like the Nasdaq or New York Stock Exchange. Instead, they’re traded in an OTC exchange. And when you’re dealing with companies who manipulate prices and skirt regulation, it’s the Wild West out there, as Dustin put it. It’s a lawless place that you should avoid.

Our Final Verdict on Penny Stocks

Technically, we’re not allowed to give specific investing advice. But we made an exception for this topic. How do we feel about penny stocks? DON’T. BUY. THEM. You’ll hear us get pretty emphatic about this in the episode. 

Buying penny stocks is the opposite of the kind of investing strategy we want you to have! We want you to have a diversified, disciplined, long-term investing strategy. You won’t find that with penny stocks. Just don’t do it, folks. 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

 

Resources & People Mentioned