My investing friend, the cravat-wearing Stock Market Dandy (who inherited money and burns it daily on the stock market) was telling me recently how to make “tons of money” in today’s volatile market.

Apparently, his friend pads his bank account by simply buying and selling penny stock companies based on press releases, individual and market wide.

He cleverly watches for press releases, then buys and sells depending on whether the news is good, or bad. Yup, that’s it. That little investing chestnut has evaded all until now. Oddly, the stock market dandy hasn’t yet adopted this ingenious principle. But I’m sure he’ll give it a whirl.

First things first. If you invest in penny stocks, chances are good you’re used to some daily volatility. It’s not uncommon for a penny stock to see its share price rise or fall anywhere from 2% to 20% on any given day.

For our mid- to large-cap peers, a week of high single-digit losses is ulcer worthy. And if you listen to the average investor, the recent see-saw on Wall Street is anything but typical.

It’s easy for non-penny-stock investors to lose perspective when triple-digit moves in the Dow Jones industrial average seem commonplace. In August alone there have been nine such days, and 32 since the beginning of June; more than half the trading sessions. The volatility is a little elevated, but it’s not well outside what has been seen before.

“Volatility is simply a force that many investors hadn’t been use[d] to, but one that is not uncommon or something to fear,” noted one analyst. “If it (the Dow) can go 400-600 on an up day, you should expect the same on the downside.”

For better or worse, it wasn’t that long ago that stock market volatility appeared to be a distant memory. Between the end of 2003 and the end of 2006 there were only two days with moves of two percent. From 1982 to 1999 the market went down only one year.

But, ever since the credit crisis began, big moves have been more common. If there’s one thing uncertainty breeds, its volatility. Because the future is in flux, so too are penny stock prices.

Market declines can be daunting, but big moves could simply underscore uncertainty, not a calamitous pullback. As one expert said, “It’s like a bouncing ball. It’s up and down, but you’re not going anyplace.”

The expert added, “This is a casino right now. This isn’t investing. The best thing for people to do is not pay attention to the headlines.”

Why might that be? Many believe that stock prices reflect all the information in the market, and that in order for stock prices to change, new information (news) has to arrive. Those of us who peddle financial news want to believe this is true. Sadly, there is little empirical evidence to support this claim.

According to a recent article in The New Yorker, much of what’s happening is a function of what economists call “herding”. In conditions of uncertainty, humans, like animals, herd together for protection. In unstable markets, this leads to trend-following: buy when others buy and sell when they sell.

Herds don’t read headlines.

Now, if you’re a penny stock investor, the current volatility is par for the course. In fact, some penny stock investors may not see their particular niche reacting any differently today than it did before the credit crisis became news.

If you’re a penny stock investor, volatility is always present; in both the short and long term. Not so for our larger peers. In times of uncertainty, it seems that these investors get weak at the knees and put too much importance on one-day, or one-week, or one-month moves in the stock market.

The same New Yorker article noted that some of these moves have been the result of real news; more often though, it’s been impossible to tell what made investors so exuberant or gloomy. “In this market, the same traders who on Tuesday seem convinced that the apocalypse is nigh are, on Wednesday, just as sure that we’ve weathered the storm.”

What are well informed, seasoned penny stock investors to do as the herd passes them by? You can do two things. One, you can add to your position, jump right in, and buy when your favorite penny stock is undervalued.

Or, two, you can re-examine what you own. Ask yourself what you think your penny stocks are worth. Deciding whether your penny stock fits in the short- or long-term category can help you avoid feeling uneasy about any and every market trend. It can help you avoid making hasty, ill-conceived decisions.

It will also help you avoid buying or selling penny stocks based on what a financial journalist says, or writes about.