Like any other business opportunity, penny stock investment requires finding out as much as you can about the product being offered and weighing its advantages and disadvantages. If you receive a phone call or email that urges you to buy a hot stock pick of the day, you have a choice: Either be careful, even skeptical, or accept the offer blithely.

Penny stock offers are many and varied and all of them tempting. They can flood your inbox with „once-in-a-lifetime“ offers. These email messages are often well-written and designed, with persuasive words and convincing testimonials from upwardly-mobile-looking personages. Phrases such as „hot penny stocks,“ „best penny stocks,“ „top penny stock picks“ the list goes on and ever on are quite often used. If you don’t know much about stock trading, there’s a higher-than-average probability that you’ll plump for the deal and pray to strike it rich. If, on the other hand, you’ve learned from your own or others‘ experience, you’ll know deep in your gut that this just might be another fraudulent offering.

The best way to approach these massages is to be skeptical and question everything. Learn from the mistakes of others. You can ask advise from your friends who dabble in the stock market. There are penny stocks offerings that are scams. The following are the signs to look out for.

One sign to be wary of are astronomical returns, or if they guarantee success in the stocks. Stocks are risky investments. There are no guaranteed returns to it. Astronomical returns are possible but rare. You need to have been able to time the market well and your stock pick was right on target. But usually, returns from the stock market don’t reach the sky. They are higher than most investment vehicles but not absurd returns. Bottom line is foolproof returns are impossible. Only savings can boast of safety.

Second, scams usually say the deals are for a limited time only and the investment price is very cheap. This makes you think the coast is clear and you will be getting a bargain. But once again, not doing due diligence on any investment is the biggest risk you can take. You can lose all your money in that single lapse of judgment.

More often than not, these shady stock sellers will regale you and attempt to strike awe with glittering success stories of big companies that they’ll claim started with their very own stock picks. If you happen to come across such claims of how some of today’s Fortune 500 companies started out with penny stock shares don’t fall for it. This approach has often been used, and is in fact overused.

The important thing to do is to not be gullible. Always be skeptical and do due diligence by checking their SEC records. Make sure they are duly licensed and their information can be checked for legitimacy. They have to have a good reputation and a long track history before you can even think of investing your hard earned money with them.

You should never cave in to pressure to invest in something. Patience has its virtues in making money. Always remember the rule 1 in investing is to never lose money. By remaining skeptical and doing due diligence, the odds of losing money is significantly lessened. Success comes from investing in companies with great fundamentals for a long term horizon.

The critic who wrote this column has found a capital structure expert named Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.