Why do most investors stay away from penny stocks? It likely has a lot to do with a lack of knowledge and the investor stigma that has collectively held penny stocks to the side-alternative of the stock industry. This has not been a bad place for penny stock investors who have calculated huge returns in a less than competitive environment.
The great argument against penny stocks is that they are unmonitored. This is partly true. Penny stocks (aside from cheap stocks found in the NASDAQ and NYSE) are found through two main resources. These are the Over-the-Counter Bulletin Board (or OTCBB) and the pink sheet boards.
The OTCBB has a number of listing requirements that seek to filter out coy companies trying to monopolize on the market. The pink sheet area is almost entirely unmonitored on any technical level. The pink sheets are not reviewed by the SEC, so theoretically any company can post stats. They do need some of the right paperwork, but the discretion is left to the investor. The penny stocks list simply supplies information, and that can be a bit much given the lack of initial oversight (something the NASDAQ does in the exact opposite fashion).
Both of these resources are mainly publishers. Their top priority is to deliver accurate information to potential investors, and it is truthfully up to the investor to find the right option for them. This appropriately makes pink sheet investing a tricky proposition. The lack of oversight makes it a “Wild West” type of environment. Though some may argue this as a clear bad thing, others may say the opposite. It manages to keep out investors who lack the skin for it. Smart investors do their due diligence by reaching directly out to the company leaders, having meetings, and buying with their own logic and understanding. Companies are still forced to supply track record information. If it is bad, or inconsistent, penny stock investors will be hesitant. Penny stocks can be better than blue chip stocks. The answer of success with penny options rests in the track record, and a willingness to be far more hands-on.