‘It literally is like going to Vegas’: The risks and pitfalls of penny stocks and apps like Robinhood

Morning After

For the longest time, the stock market was something out of reach for many people. It still is for many Americans. However, apps like Robinhood are starting to change that.

Robinhood makes it possible for people to easily buy stocks at their leisure all from their smartphone, and to buy what is known as penny stocks. These are stocks usually just a few cents per share.

While easy to do, there are pitfalls.

“It tends to lead to gambling-type investing” says Clark Hodges, Chief Marketing Officer of Hodges Capital.

Trading in penny stocks is a short term game, whereas investing is a long term process that is not decided on impulse.

It can also be a mystery as to what companies you’re actually buying into, according to Hodges. Many do not have healthy finances and some you can’t even find information on.

“It literally is like going to Vegas” says Hodges.

For a wealth manager like Hodges, it’s contrary to how he approaches investing. Legally he can’t even buy or recommend penny stocks due to the risks involved.

“Acting on impluse is a trader,” he says, “and I love to say this line, ok, ‘tell me any billionaire trader.’ I don’t think you can do it. But I can give you a lot of billionaire investors.”

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