InvestED: The Rule #1 Investing Podcast
437- Penny Stocks & Movies
Sep 26, 2023
On this episode, Phil and Danielle discuss the risks and temptations of penny stocks, including their low cost and potential for high returns. They touch on topics like eye surgery complications, parenting challenges, the trading of penny stocks on the pink sheets, and the rise and fall of Belfort. The speakers also explore the appeal and risks of penny stock investing, emphasizing the importance of caution and thorough research.
35:57
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Quick takeaways
- Penny stocks carry significant risks and are often manipulated due to light regulation, making them a warning sign for value investors.
- Penny stocks are thinly traded and illiquid, creating a breeding ground for manipulation and volatility.
Deep dives
The Dark Side of Penny Stocks
Penny stocks, defined as stocks that sell for under a dollar, were once traded on the pink sheets due to small sales volume and high commissions. Pink sheet stocks were lightly regulated, making them easy targets for manipulation and scams. The lack of liquidity and information creates high volatility, allowing market makers to drive up prices before unloading and causing the price to crash. Jordan Belfort's story in 'Wolf of Wall Street' portrays the manipulation of penny stocks. The SEC only loosely regulates the microcap market, which makes it risky for investors.
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