Are Penny Stocks a Waste of Time?

Are Penny Stocks a Waste of Time?

Penny stocks sound attractive from the moment you hear that name. You can own stock in a legitimate company for a penny or less. This could be your chance to find the next Amazon or Google for just a penny. But are penny stocks a waste of time? The intrigue of instant wealth pulls retail investors into the stock market each and every day in search of the next big thing.

What Makes Stock a Penny Stock?

A penny stock is simply a micro-cap sized company, or a not-yet profitable growing company selling their stock for any price under 5 dollars per share. Some companies dispense their shares for fractions of a penny per share, that's right, you can actually purchase multiple shares per penny in some cases. The 5 dollar max per share is a rule of thumb but not an exact figure. It is based on the fact that many money managers' entry point for institutional, or large scale investments is around 5 dollars per share because of stability in prices at this level. Share of any company under 5 dollars per share can be volatile, or subject to large swings in price in either direction. So money managers and financial professionals tend to avoid stocks under 5 dollars in general.

Why Should I Buy Penny Stocks?

Penny stocks from fractions of a cent to a few dollars per share are subject to large gains as well as large losses in short periods of time. This volatility is attractive to some investors who don't mind risking their money for a big gain. The low buy-in price per share also gives the retail investor more shares for their money. The feeling of more shares for your money is appealing for those stock market investors who are just getting their feet wet in the investing world.

A simple example is the fact that you would only own 10 shares of a 100 dollar stock with a 1 thousand dollar investment, but you would own 100,000 shares of a stock valued at 1 cent for the same investment of your capital. The feeling of involvement with the penny company seems deeper than if you only owned a measly 10 shares of the larger, more expensive company. This creates a feeling of being a superior investor, but the risk of the penny stock going to zero is far greater than the 100 dollar stock going to zero. Conversely, the possibility of the penny stock climbing to 2 cents is better than the 100 dollar share climbing to 2 hundred dollars. So that's where the risk versus reward scenario comes from. Most new investors don't consider the is versus reward before investing, they are just excited to be able to buy so much stock with their money.

So should you waste your time with penny stocks? The answer lies within your own risk tolerance. Most penny stock companies are trading at these low levels for good reason. Low profit, unprofitable, or unable to make a profit are reasons why share prices are so low in the first place. Invest with care and keep in mind that old old adage, you get what you pay for...

Learn more in our Penny Stock Forum

Comments

Post a Comment

Popular posts from this blog

A Brief History of Marketing

A Brief History Of Marketing Marketing research dates back to biblical times by most estimates, The exact date is open for discussion, but regardless of its exact inception, it is a concept constantly evolving throughout the centuries. Even the wall art in caves can be considered marketing but that's a bit of a stretch... As much as 48% of what you pay for a product goes into the marketing, this is a remarkable statistic that really puts this industry into perspective. Marketing is and always has been a combination of qualitative and quantiative research. Qualitative research involves the people, or the customers, their habits, proferences, choices, etc. Quantitative research involves head count marketing, for example how many customers in a particular area or maybe how many units each customer will buy. Most good marketers will combine these two concepts for a hybrid quantiiative and qualitative approach. A skilled marketer will obtain and analyze data to build a marketing p
Read more

Where Does the Middle Class Find Affordable Dental Care?

Image
Middle Class Dental Where does the middle class find affordable dental care? It seems the system always favors either low income residents and those who are financially comfortable or just plain wealthy. Far too many people have to pick and choose their dental care because of their financial situation. What we see is dental care programs for low income households, these are common and necessary. And as for those who are well off, well we know how that goes... Either they have full coverage dental insurance or they have the cash in hand to cover any dental expenses at will. So where does the middle class fare in all of this? Middle class income statistics in the United States are always changing. In 2021/2022, the definition of the term "middle class" or "middle income" is a single American who earns approximately $30,000 to $90,000 per year. These specific numbers are open to discussion but, in general, this annual income range is fairly accurate. Exce
Read more