Speculation in penny stocks is now at a trading level that exceeds the torrid pace of the late nineties. Here the WSJ lays out the horror. Payback will unfortunately be even tougher this time around. Tomi Kilgore reports:
Investors are piling into the shares of small, risky companies at the fastest clip on record, in search of investments that promise a chance of outsize returns.
The investors are buying up so-called penny stocks—shares of mostly tiny companies that aren’t listed on major U.S. exchanges—at a pace that far eclipses the tech boom of the late 1990s. Those include firms that focus on areas from medical marijuana and biotechnology to fuel-cell development and precious-metals mining—industries that are perceived by some investors as carrying strong growth potential.
Average monthly trading volume at OTC Markets Group Inc., OTCM +5.65% which handles trading in shares that aren’t listed on the New York Stock Exchange or Nasdaq Stock Market, NDAQ +0.17% has risen 40% this year in dollar terms from a year ago, to a record $23.5 billion.
The renewed interest in a market that used to be known as the pink sheets—because of the colored pieces of paper once used to record prices for unlisted stocks—shows investors are ramping up risk in a bid to boost returns as U.S. stock indexes are hovering near highs and stock valuations have risen above historical norms.