Don’t ever judge a book by its cover. Chances are… it’s a good book. Otherwise it would have never been published. The same goes for penny stocks…

There are several accusations about penny stocks that can make an investor hesitant and timid to invest because of a "risky no-gainer gamble" stereotype. These statements are exaggerated and erroneous…

Learning the truth about what you heard in the past… might be a wealthy opportunity for the future…

Here is the top 3…

Misconception #1: Penny stocks are priced low because they are poor performing companies.

Penny stocks are usually small and newly created companies. While still trying to get established, penny stocks are analogically infants and toddlers compared to large-cap adult companies. With great parental guidance from a superb managing team, penny stocks can hold a promising future.

Hints: Do your research! Get background information. There may not be an abundance of information on the company because of lack of media attention. So research patiently and vigilantly.

Check if the managing executives and board members are respectable and passionate towards the company. A positive staff is always going to produce great work and show that through the company’s bottom line.

Make sure the company is in a growth position and if they are compatible with future trends and markets. A company’s willingness and desire to expand is a good indication of the value of a company to potentially rise.

Another good way to analyze a company is by reviewing a company’s financial reports and accounting sheets. 10-K annual reports are a great source to attain information. Comparing and analyzing numbers throughout the years will show the "guts" of a company that you won’t read or hear about in the news. However this process can be challenging…

In compliance with SEC rules, companies have to report their financial records. Inside executives know that these records are easily accessible and can show the value and worth of the company. As a loophole, firms will try format the reports differently every year to make the evaluation more difficult and tedious to analyze.

Misconception #2: Penny stocks are all frauds.

Some investors have fallen victim to the "pump and dump" scheme – a system where spammers will buy a stock and then hype it up by sending out positive e-mails and internet ads causing the price of the stock to jump. While the price is up, spammers will sell at a net gain, causing the price to fall, leaving their victimized investors holding the bag.

Hints: Go back to the basics. One of the primary rules to investing… never… ever… invest on tips and rumors. Chances are, your source is wrong or you’ll get in too late…

Do your research! Make sure you know what you are investing in. Make sure your sources are honest and ethical and act upon the interests of its investors and clients. Tips are only ideas. Investments should only be made on your own personal conclusions.

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