Most Penny Stock Companies start out the same way: An entrepreneur lists a company on a (usually) junior exchange to raise financing for a new venture. If they're competent, they know they'll want to promote the share price so that the stock is worth more than the company. In this way, management can sell its shares to investors and maintain as much control over the company as possible. Then using the capital, and incentivizing themselves with cheap options, management attempts to develop a profitable company whose share price is eventually worth the promoted share price…and hopefully much more.

Most actively traded Penny Stock companies also share most of the following characteristics:

• Marginal or no sales
  
• Marginal or no cash
  
• Non recourse debt owed to "friendly" shareholders without recourse or time for repayment
  
• Little or negative shareholders equity
  
• Few or no assets
  
• Some form of intangible debt or "goodwill"
  
• Few or no employees
  
• An "incredible story with insane potential" to either become massively profitable quickly or to change the world as we know it
  
• Sometimes, a talented CEO or other executive that has a reputation or blue chip experience
  

Before we ask how they can be categorized, we may want to ask...why should we? Because there are significant differences that allow the astute investor or speculator to determine which Penny stocks to invest in, and which ones to stay away from.

Since they all look alike, you may ask how they can be classified. Most penny stock investors have been taught to look at management and structure of the company. The truth is, it always, always, always, depends on the promoter. The best company in the world without a competent promoter will not make a dime for anyone, including management and early shareholders.

So it logically follows that the companies we're looking at investing in can be categorized by categorizing the promoters. And these promoters fall into atleast five classes that I'm going to introduce you to in the next series of blog posts. Stay tuned. This will not only be informative and entertaining, but if you get it right, very profitable for you.

Or you can let me do all the work for you and subscribe to my stock picks at http://www.pennystockjockey.com/