This is why it's important to do your homework on the stock. Since businesses are always either contracting or expanding, you need to determine whether the share you're interested in purchasing is growing or shrinking.
Anyway... it's a good sound article.
Penny Stocks Speculation - Mike Swanson
I would be easy to surmise that stocks that sell for only a few cents could not ruin you financially. Unfortunately, this is not true. The opposite is actually true. Because of the lower price, investors tend to over purchase these penny stocks with the plan to "get rich quick". The idea is that when the stock increases in value, you will have many more stocks to sell at a huge profit
The facts are quite different than the fantasies, however. Stocks sold for pennies are typically companies headed for bankruptcy or companies that are newly formed with no history. These stocks do not meet the minimum standards for selling on the stock exchange so are traded on "pink sheets". Because of this, the likelihood of these stocks being great investments is marginal. Large amounts of money can be lost very quickly.
http://www.istockanalyst.com/article/viewarticle/articleid/3795051
