Below is an introduction to the world of penny stocks. For more articles on this subject, follow links located at the bottom of this page.

Your younger brother called yesterday, waxing enthusiastic over some company he just invested in. He bought their stock, he tells you, for only $1.34 per share! Oh no! A penny stock—what is he getting himself into? But before you call him back to deliver a lecture on prudent investing, consider this—exactly what does that low price tell you about the company your brother is now a shareholder of?

Is it probable that some high-tech start-up is lurking here, or is it possible that a well-established company would be priced so low? Does it have to be a tiny outfit with no real growth potential, or could it be a household name known nationwide? Can you infer how well the company is managed from the stock's price? What about its financial condition or recent performance? Do you know where you can buy the stock or how often it trades? Should an investment like this always be considered fundamentally speculative? Is it a scam? Does the low stock price itself tell you anything at all about the company or its prospects?

In a word—no. Sadly though, belief remains widespread that all cheap stocks are simply pariahs crowding the marginal over-the-counter market, investor swindles just waiting to happen. Assumed by many to be fly-by-night companies which will be gone tomorrow with your cash in tow, they are usually referred to as penny stocks, and they are perhaps the most misunderstood and maligned group of stocks in the entire marketplace.

In fact, a great deal of legitimate business activity concerns itself with the many reputable companies that have low-priced stock. Across the United States, whether you grab some fish & chips for lunch, stop at the corner store for a lottery ticket or fly to Hawaii for your dream vacation, you may well be doing business with a so-called penny stock company. Arthur Treacher's, Hawaiin Airlines, 7-Eleven (The Southland Corporation)—with stock prices ranging from $.62 to $3.25 on December 31, 1998, the shares of this diverse and reputable group fit squarely into some of the most common definitions of penny stocks.