Penny stocks are shares that trade from a fraction of a penny to $5.00.
The idea of large profits is exciting. Let me explain with an example. Suppose you have $500.00 to invest. The penny stock investor looks for a very low priced stock at about a dollar or less. Now suppose this great penny stock costs .49 cents per share. Now we do simple division, $500.00 divided by .49 cents equals 1,020 shares that can be bought (to keep the math simple we won't include the broker's commission). Now let's say the stock price increases to $1.00, the increase to you is a profit of .51 cents per share. Let's do the math to look at your money's increase. 1,020 shares that you own multiplied by .51 cents increase in price and you now have $520.00 more than what you started with. As always, you need to sell your stock to keep your profits. When you sell, you get back the $500.00 started with, and the $520.00 profit this stock made. The total you now have in your trading account is $1,020.00. This sample stock trade went well when you first look at the results, which is the money made.
Did this increase happen in a few days, months, or years?
With penny stocks the risk of losing your principal (the $500.00), is very high. Penny stocks are priced low for a reason. They are riskier than the average investments, and companies are small, or new. There is no growth history in any of its fundamentals (you learn about fundamentals in our textbooks and instruction). The company could be a consistently poor performer, or it may take a very long time for the price of the stock to increase, how long will this take (we have no history)?
Penny stocks have the ability to turn a small investment into a fortune
Penny stocks are a speculaton play (because you think you can make some money here, with no proof of performance). This concept goes back to the oil well drillers. The driller believes the oil well will be a money maker, but is running out of money to continue drilling, so the driller goes to the public (you and me) for more money to continue drilling. If the well hits oil, everybody invested makes money, but if the well is dry, then all involved lose all the money invested. Some make money, others lost money (which will you be)? The wells were new with no history of oil production. All that these drillers had is a belief the well would find oil, and a desire to continue drilling using investor's money (the investors hoped to make lots of money quickly).
A well that is making money, with a history of performance, would be a good place to invest. You will pay more per share for this well ($20-$35 or more). The upside is that you have a history of the wells performance to research (1year,5year,10year), and have reasonable expectation that you will not lose your investment, with the addition of profits paid to you for investing. (Your research would begin with "ROIC" Return On Investment Capital, which we offer in lesson #1 free at http://www.youcontrolinvesting.com/ ).
Speculation investing, not recommended, but for fun only.
If you have quality investments growing for your future, then you're doing well. A small investment in penny stocks, to add some interest to investing, would be good. Speculation helps to remove boredom from the investor.
Don't be fooled by computer programs that are said to pick penny stocks correctly. No where have I read or heard from any source (other that the promoter), that these programs are reliable or in anyway consistant. Before sending in your money for the purchase of one of these programs, check with the Better Business Bureau for complaints (I would stay away from these programs).
Avoid promises of winning picks that will make you a fortune. Question everything you read and see in emails and online at penny stock sites. Not all sites and offers are going to help you invest safely.
For more information on investing wisely and safely see our site http://www.youcontrolinvesting.com/ . You can request our free lesson #1 "ROIC". You will learn how easy it is to pick quality stocks, and begin investing in stocks and watch your money grow. Try lesson #1 on us, it's free.
Good Investing.
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There are a lot of penny stocks in Singapore market, some of them are not as bad as we think. in fact they are good company. Other than stick with the small number of leaders in the market, we should also look at those critically undervalued penny stocks. For example, Advance Holdings Ltd, Net Cash > Market Capitalisation.
ReplyDeleteYour blog is very nice.
ReplyDeleteYou have to be really cautious when it comes to your investments. There are now bogus sites tat would lure you to bid and pay up for nothing.
ReplyDeleteAvoid most stocks below 1 dollars stick with 1 to 5 dollar stocks
ReplyDelete