Investors tend to be an optimistic bunch, often buying into Wall Street's stories of huge growth potential. Sometimes those stories are built on a solid foundation, but other times they look like nothing more than hopes and dreams. Penny stocks, which generally trade for less than $1 a share, often fall into the "hopes and dreams" category. Here are two real-life examples of why most investors should avoid penny stocks like the plague, no matter how pretty a picture management paints.
Northern Dynasty Limited (NYSEMKT: NAK) is looking to build a mine in Alaska. On paper, the Pebble Project looks fantastic. According to the company, it is the largest undeveloped copper and gold resource in the world. The measured and indicated reserves (the amount the company thinks it can pull out of the ground) are huge, with 57 billion pounds of copper and 71 million ounces of gold. There are also silver (345 million ounces) and molybdenum (3.4 billion pounds) in the mix, too.
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