Stock Markets Exposed

Question about penny stocks?

I have a theory about penny stocks and I wanted to see what you all think about it. Suppose I had $2000 and I bought and held $100 worth of 20 differnt penny stocks. Are chances on my side that I would get at least one or more stocks that are 10 baggers or more? I know penny stocks are risky, but if I just buy and hold, there's got to be at least one out there that should make me quite a bit of money over time as it possibly grows and splits. Has anyone else out there tried to invest in penny stocks in this manner? What do you think of this strategy? The only reason I am considering this option is because I am not rich and I don't have much leverage. Penny stocks offer an incredible amount of leverage. If you buy a stock for $0.01 and it goes up to $0.02 you just doubled your investment! Think about what happens if it goes up to $10.00! It does happen! I've seen it and always wished I was in on that action.

Public Comments

1. Penny stocks are penny stocks for a reason. Think about that. Why does nobody wants them anymore? Because the probability of those companies going bankrupt is pretty high. So, be extremely selective. Do your homework on every stock you think of buying. Find the reason the stock is a penny stock and asses that reason. Second answer: consider investing the money elsewhere where your chances of winning are less random.
2. Penny Stocks can be a great investment, but you have to know what to look for, or sometimes more accurately, what to look out for. Buying Penny Stocks based on a recent email you received, or what you heard from someone you barely know, is not usually a good idea. Penny Stocks have historically been a source of wealth for many investors, but conversely have been the source of countless lost small fortunes. Determining what is good advice, mixed with all the hype, can sometimes be a very difficult process. You don't have to be a stock market guru or brilliant investor to make a killing with Penny Stocks, but you do have to be willing to do your homework, and use a great deal of common sense to stay alive when you are swimming with the sharks in what can be dangerous waters. Ask yourself a few basic questions about the company in question. Are they making money? Are they creating new products? Are these new products going to be valuable in the future? The rules for trading Penny Stocks aren't much different from those of trading large cap stocks. However, the risks can be much larger, but the rewards can be as well. If you aren't willing to do at least a bit of homework, investing in any stock is not a good idea. Never rely entirely on anyone's advice, especially when dealing with Penny Stocks. But, if you take the time to research your investments, investing in Penny Stocks can be a very financially rewarding experience.
3. You very well may hit a very good returning stock by your method (spread $2000 among 20 random penny stocks), but overall and I guarantee eventually you will fail with that strategy. My basic question to you on this is, if it were that easy everyone would be doing it, and I guarantee many people have tried this (or a similiar) strategy, and failed. Anyhow, to answer why this would fail, let me give you some problems you may not have considered. First off, commissions are very high, just to invest that money into the stocks may run you a few hundred dollars; thats about 10% of your money right there, and you still have to pay commissions on what you sell. ie the first 20% (or something like that) of your gain just goes to paying off commissions. Also, penny stocks are very, very illiquid, meaning to buy even just $200 of one of them may on its own cause the price to go up. Thus, for example, you may end up getting half the stock at .01$ and half at .015$ and then watch in horror as the bid price immediately drops back to .01$. So, your average buy in price was 1.25 cents per share, and the bid now is back to 1 cent per share. You just lost 1/5th of your money, and remember again that this same thing will happen when you sell. Finally, remember that stronger companies never enter the world as penny stocks. They go straight from privately held to IPO's for 10$ per share (or whatever), so to be a penny stock the company probably is a weaker, much riskier company already, hence they do much worse (on average) than regular stocks. So in summary, I think this strategy may well find you some multi-baggers but you will lose all (or at least most) of your money on most of your other stocks, and overall almost certainly lose money. Again, if it were that easy, everyone would be doing it. One last thing though, I really think this is a losing idea, but hey if you don't believe me give it a try anyhow. If you are smart the gained experience may well be worth more than the cost. So, consider the money you put into this as play money, or tuition money for learning first hand more about how to play the stock market.