If you want to invest in penny stocks, you need to consider these four reasons why penny stocks fail. The first one is there is a lack of information available to the public. Therefore, when you consider choosing penny stocks for potential investment, it means that you need to gather more information to decide. In addition, information regarding corporate performance is challenging to find, thus information on penny stocks are rarely available. Plus, it is to note that if you happen to find information you need to make sure it is reliable since it’s not always credible.
For example stocks traded on the OTCBB, it carries the suffix OB to their symbol. These companies mostly file financial statements with the SEC. Meanwhile, companies listed on the pink sheets do not have the obligation to file with the SEC. Companies listed in pink sheets means that these stocks trade over-the-counter rather than on a major U.S. stock exchange. It could also refer that some pink sheet listings are companies unable to meet the requirements to list on a major U.S. stock exchange like NYSE. It is to note that these businesses do not get public security or regulation as those in NYSE, the Nasdaq, and other markets.
Another reason why penny stocks could fail is because it has no minimum standards. The reason is because stocks on pink sheets and OTCBB do not have the requirement to fill the minimum standard requirements. They do not need this in order to maintain their availability for sale through OTC exchanges. If they cannot maintain their listing positions, they could move to one of the smaller OTC listing exchanges. For some investors the minimum standard could be safe for some investors. But, if a company is not subject to higher standards, it means that it carries most risks.