The Securities & Exchange Commission halted trading on 17 penny stocks this week.
It says it simply doesn't have enough evidence that the companies are not frauds.
Those who hold shares in the 17 firms are left in the lurch. Shareholders cannot sell the stock they own right now if they wanted to. And when or if trading resumes on those stocks, they're almost sure to take a crushing blow.
Hardly seems worth the risk.
Big Returns, Fast
I understand the allure of the penny stock. In fact, I had a bit of a penny-stock experience myself back in 2008, when I really new nothing about stock investing and probably had no business being in the game.
The penny-stock sales pitch is simple: You buy thousands of shares of something that cost cents apiece, and in little time, it can double, triple, quadruple or more.
Web and email advertisements tout huge gains and more to come.
"Penny Stock MILLIONAIRE!" one screamed.
But while the chances of a huge score are there, they are very, very small.
What's more, many of those companies hyping the penny stocks dump them once they've convinced enough investors to buy and the price has increased.
They take the profits, you take the fall.
Seems more like playing roulette than investing.
Still, I know smart people who take risks on penny stocks. In fact, a former colleague of mine contacted me to say he owns shares in one of the 17 that have had trading halted. He doesn't own a lot, but enough to have him concerned about what will happen to his money.
I wouldn't want to find myself in those shoes.
A Near-Penny Experience
I've never considered myself a conservative investor. I have bought my share of speculative stocks. Stem-cell biotech Cytori Therapeutics (CYTX) still has a place in my portfolio. I've owned stock in a Chinese fertilizer company and a Chinese drug store chain.
All three have been roller-coaster stocks, with impressive climbs and hair-raising drops.
But the stock I've had that was toughest to own was SIRIUS Satellite Radio (SIRI.) While not a true penny stock, SIRI was selling for around 45 cents a share on the NASDAQ when I took the plunge thinking it was a steal.
Much to my chagrin, it was soon selling for a nickel.
And not only that, it was teetering on bankruptcy.
I washed my hands of SIRI later on, after I'd learned a little about analyzing a company's fundamentals, and realized I didn't like SIRI's at the time, at all.
I didn't lose any money on the stock, and I considered myself lucky.
Lure of the Longshot
Since then, I've learned that good investing is a lot less about the dream of scoring an easy buck and more about the hard work of earning money.
That's not to say it isn't still fun. And I think there's room in a portfolio for a speculative stock like CYTX, a growing company with bright prospects and a low per-share price.
If I ever find myself wanting a bigger thrill than that, I'll bet a long shot at the track.