That's because the majority of penny stock companies are either scams or start up companies without any capitol, who can't get a loan from a bank so they go on the OTC board to raise capitol for their business, or companies who have a new product and try to market it.
it's not the psychology of penny stocks, it's the nature and the fact that they disappear so quickly with your money and nothing you can do about it.
The SEC (very) loosely regulates OTC companies and many are here today and gone tomorrow after taking investors money. Scores of penny stock companies never make a dime in revenue after projecting all kinds of misleading information and down right lies.
More penny stock companies fail than make it and disappear with investors hopes and dreams and money after buying into their news releases. It has been said that out of 100 penny stock companies, nearly 70% of them are scams, 20% actually make a profit, and 5% are what they say they are with 5% a combination.
Google penny stocks or otc stocks and you will see why investors do not like to hold penny stocks. Most of them never make it to where they say they are going and end up just sliding backwards and becoming stagnant, while the owners and board of directors start up another company to bilk investors out of their money. There are so many OTC companies that the SEC can not even come close to full regulation and there are opened and closed so rapidly that they very seldom can be caught. plus they have very poor reporting standards. they can report anything they wish and very seldom are they caught in a lie even when it's a scam.
" Since many sub-$1.00 stocks, especially those that trade for fractions of a cent, are thinly traded, and by definition large amounts can be purchased cheaply, they are targets for price manipulation.[4] This is often referred to using the term "pump and dump". A pump and dump is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements. There have been cases where individuals or organizations have bought up millions of the shares, and then used websites, press releases, and e-mail blasts to drive interest in the company's stock. Very often, inaccurate or misleading information is provided to persuade investors to buy the shares. This pushes the price up, and this can lead investors to believe the positive statements in the promotion advertisements. Eventually the people doing the "pumping" will sell their holdings" http://en.wikipedia.org/wiki/Penny_stock
Many investors are attracted to penny stocks because of the buying power (you can buy lots of shares without a lot of money) and “potential” payoff. Keyword is “potential” or better translated as “not likely“. " Many of us have been exposed to some sort of scam promoting penny stocks. According to a study conducted at Oxford, 15% of all e-mail spam was related to penny stock fraud.
“People who responded to the ‘pump and dump’ scam lost 8% of their investment in two days. Conversely, the spammers who buy low-priced stock before sending the e-mails, typically see a return of between 4.9% and 6% when they sell.” http://www.goodfinancialcents.com/what-is-a-penny-stock-scam-pump-and-dump/
"While we all dream about investing in the next Microsoft or the Home Depot, and actually mentally start calculating the profits, the sad truth is that the odds of finding out that once in a decade, success stories are slim since these companies are either start-ups or have purchased a shell company as it was cheaper than an IPO, or they just do not have a business plan that is good enough to justify investment banker’s money for an IPO."
"[b]Penny stocks are extremely high risk and many of them end up losing a large percent or even all of their value eventually."
Google why are penny stocks so risky and you will have your answer as to why investors don't like to hold penny stocks, but love to trade them...
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