By: Megan Makuck, Fall 2017 IAC Student Intern
There once was a penny trader who was bored as he sat at the computer watching the penny stocks move. To amuse himself, he took a deep breath and sang out, “There’s a new penny stock! Everyone come see!”
The villagers came running up to his office to invest in the penny trader’s new discovery. They each invested $1,000 in the new penny stock, only to see the stock crash and burn before the day ended. The penny trader laughed at the sight of their angry faces.
“Don’t cry ‘wolf’, penny trader,” said the villagers, “when there is no penny stock that will go up in price soon.” They went grumbling down the hallway.
Later the penny trader sang out again, “Come see! Come see! There is a new penny stock!” To his mischievous delight, he watched the villagers come running into his office to invest in the penny trader’s new discovery. Again, they each invested $1,000 in the penny stock, only to see the stock crash and burn.
When the villagers saw this happen again, they sternly told the penny trader, “Save your shouts for when there really is a penny stock that will make us money! Don’t tell us to come running when the penny stock price is only going to fall!”
But the penny trader just grinned and watched them go grumbling down the hallway once more.
Later, he saw a REAL penny stock about to skyrocket in price. Excited, he shouted as loudly as he could, “Come see! Come see! There is a new penny stock!”
But the villagers thought he was trying to fool them again, so they didn’t come.
At the end of the day, the villagers saw the penny trader drive away in a fancy new car. The penny trader invested in the penny stock that no one else wanted, and he made 500% return on his investment that day. But no one else reaped the benefits of the penny stock because the villagers did not believe him.
Moral: Penny stocks move in price very quickly – up or down. It is hard to know when a penny stock price will skyrocket or when it will tank, and the risk of these investments mean that many of us should learn from the villagers and stay away. To learn more about the risks of penny stocks, visit the SEC.