Motley Fool CEO: These Investors Should Never Invest in Penny Stocks

Key Points

• Motley Fool CEO Tom Gardner has a simple rule for newer investors.

• Established, successful companies are much better prospects than any penny stock.

• These 10 stocks could mint the next wave of millionaires ›

Sometimes, what looks like a good deal isn't great at all. For instance, buying cheap stocks seems smart, particularly if you're new to the game and don't have a lot of cash. Why not buy 1,000 shares at a dollar a piece and get rich quick?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

The temptation is real to buy several dozen (or hundred) shares of low-cost penny stocks. If you don't believe me, go back and watch "The Wolf of Wall Street," and remember that Leonardo DiCaprio's performance is based on a true story.

But Motley Fool Chief Executive Officer Tom Gardner says that's the wrong way to start. In a June 2025 interview, he shared a simple rule: No stocks under $10 your first three years. Here's why.

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What did Tom Gardner say about penny stocks?

Gardner founded The Motley Fool with his brother, David Gardner, and Erik Rydholm to educate individual investors and help them make good decisions about their money. Here's what he said about penny stocks:

No one should make a purchase in the public markets of a stock priced below $10 a share as their first investment or first collection of investments. There are companies that can perform very well with a low share price, but in general, that is an indicator of a failing business. That is simultaneously attractive to new investors because they think I can get so many shares. Do you want 5,000 shares of wallpaper, or do you want one share of Berkshire Hathaway, priced in the hundreds of thousands of dollars? The total number of shares don't matter.

For instance, if you invest $2,100 into Meta Platforms, you can get three shares that will be of equal value to a purchase of 2,100 shares of a $1 stock. But the odds that the $1 stock will rise are much lower than Meta's prospects.

Penny stocks aren't investing. They're gambling. They generally fall into one of two buckets:

A long shot. These typically are companies that are years away from ever getting a penny of revenue and are surviving only by raising huge amounts of capital to fund research. Think of early-stage biotech companies that are in the discovery and pre-clinical phase of research. Even after they get a drug candidate, they have to go through three phases of clinical trials -- again, a very costly process -- before they can think about getting regulatory approval and eventually getting to market. Thus, the stock price is incredibly low because there's no profit to be had for a long time -- and even then, everything has to go right.

A failing company. This is what you call a company that is in absolute free fall for various reasons. As the saying goes, you don't want to catch a falling knife. Sometimes, these companies are failing, and the stock falls to penny stock status because they've simply been beaten by competitors who are doing a better job and capturing the market. Sometimes, there are regulatory issues, or the stock is being heavily sold short by investor hoping to profit from a declining share price. You see this most often in some retail companies, smaller banks, and some cryptocurrencies and companies affiliated with cryptos. JetBlue Airways stock is an example of this right now.

If you're just starting out, penny stocks aren't worth the risk

In general, newer investors should remember that there's always a reason a penny stock is so cheap. If there was value in the company, more experienced investors would have found it.

"If I could say to the entire world, when you enter the public markets, you are not allowed to buy any stocks in the first three years that are priced below $10 a share, we're going to save literally hundreds and hundreds of millions of dollars across the investment landscape for newer investors," Gardner said in the interview.

By sticking to that strategy, first-time investors can start their investing journey on the right foot and can lay a foundation to meet their financial goals.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Meta Platforms. The Motley Fool has a disclosure policy.