In the days of yore, what we call penny stocks today often did cost only a penny per share. Today, any stock selling for less than $5 or so per share might be considered a penny stock. They often represent companies with less-than-stellar track records, promising great success around the corner. (Revolutionary gold deposit detectors! A cure for the common cold! Effortless weight loss!)

Penny stocks are dangerous because people think low prices mean bargains, and that they'd be better off spending their $500 on 300 shares of a penny stock than on 15 shares of Pfizer (NYSE:PFE) or 10 shares of Citigroup (NYSE:C).

It can be hard to believe, but a stock might be grossly overvalued at $1.50 per share but significantly undervalued at $150 per share. Many people don't understand this, and they often gravitate toward the $1.50 stock, thinking it'll more quickly double in value. That's a risky assumption, though. Your performance holding a stock really depends on 1) the stock's intrinsic value, not its trading price; 2) the price at which you buy into the stock; and 3) the amount of money you invest, not the number of shares you own.

Imagine that you buy 100 shares of a $0.60 stock and one share of a $60 stock. You'd spend $60 for each investment. If each investment doubles in value, you'll have 100 shares of a $1.20 stock, worth $120, and one share of a $120 stock, worth $120. You would have gained no advantage by buying the lower-priced stock.

Plus, most penny stocks are selling for a low price for a reason. They occasionally get hyped and soar briefly, before plummeting back to earth. Steer clear of the pennies.

Learn more about penny stocks in this follow-up article to one of our April Fool's Day jokes. You can also learn all about brokerages and find one that's right for you in our Broker Center.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.