5 ‘Pickpocket Investments’ That Will Steal From Your Nest Egg

Be on your guard against these investments or it might cost you

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5 ‘Pickpocket Investments’ That Will Steal From Your Nest Egg

#2: Low-Volume Stocks

Penny stocks and microcaps (the stocks most commonly characterized by low volume) can be rewarding if you buy them at the right time and make big profits. But they also can bankrupt you with their volatility.

The nature of these small stocks means a little buying pressure goes a long way, and simply placing a buy or sell order can cause these companies to soar or crash. That means they can move big on news — or move big on no news at all. That makes them prime targets for pump-and-dump artists trying to drive up the price through unscrupulous tactics.

I have written extensively on inherent problems to penny stocks and microcaps that trade over-the-counter and on the pink sheets (see this post about microcap risks, this post about low volume and this post about penny stock scammers).

I highly recommend never buying a stock with a volume of less than 100,000 shares daily or a market cap of under $500 million. There are exceptions, of course, but this is a good rule of thumb to avoid this ugly part of town and steer clear of pickpockets.

If you must trade low-volume stocks, always use a limit order to protect your entry price and sell price. And if you are buying a significant amount, consider distributing your transaction over a few days or weeks instead of moving the market with one big order.


Article printed from InvestorPlace Media, http://investorplace.com/2012/10/5-pickpocket-investments-that-will-steal-from-your-nest-egg-2/.

©2014 InvestorPlace Media, LLC

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