Long-Term Penny Stocks

For an experienced investor on the upper exchanges (NYSE, NASDAQ, AMEX), understanding how to invest on the lower exchanges of the OTC:BB and Pink Sheets takes a level of adjustment not uncommon to career changes. Too often an investor is brought into the lower exchanges by the tempting intrigue of higher returns. More than not, the investor will carry the misconception that the statistical factors analysts use on the upper exchanges are applicable in the lower exchanges as well. Yet on the lower exchanges, it is errant to believe this to be true. There is no compliance to industry averages, relative P/E multiples, or progressive indication through forward split notifications. Volatility exists because investor sentiment is both cautious and variable. As one analyst recently commented on the idea of trading penny stocks, "Typically the share price will fluctuate on non-related issues apart from earnings and company performance." Perhaps to even highlight the instability on the lower exchanges, investors are often quick to question the very trading system itself through fears of a likely scenario called naked-shorting.

With a lack of uniform stability on the exchanges, it is only common sense to believe that a new set of pragmatic investor clichés will emerge through trial and experience. Therefore, a statement such as "long-term penny stock investments are tradable" ought not to be perceived as an oxymoron. Statistics will show you that investments held over the course of years often far exceed the profitability of short-term investors who habitually cash out at meager single profits. On the upper exchanges, I would tend to agree. On the lower exchanges, the additional risk would make this a foolish course of action. The hidden gems on lower exchanges will appreciate overtime, but they will also react on a consistent basis.