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If you want to find an opportunity that can really supercharge your investment strategy, then Penny Stocks are one area that definitely needs looking at.
A penny stock is anything that trades at under $5 per share and with a price that low, you may be forgiven for thinking that penny stocks are just junk.
Well, if we’re being honest, then there are some real dogs in the penny share sector, but it would be a mistake to tar all of them with the same brush.
In fact, plenty of billion-dollar companies started out as penny shares including Amazon, Monster Energy Drinks and Apple to name but a few.
So, if you pick them right then you can be on to a good thing, but the important word here is ‘if’ and as we know that’s a big word.
The bad side of penny stocks
OK so not everything in life is perfect and penny stocks are no exception so let’s start by looking at the bad side.
They are often companies that are on shaky ground – if a stock is trading for only a few cents then there has to be a good reason for that and often it is because the company has very little chance of surviving.
It may be crippled with debt, have an old or outmoded business model or an incompetent management team. Some might have all three!
They may have little in the way of assets – now this can mean physical assets like machinery and buildings or it can mean intangibles like brand names or even people.
Companies use assets to derive value and if they don’t have any assets of note then they are unlikely to be successful any time soon.
Penny stocks are volatile – When they lose value, they can often lose it quickly and whilst a 5c loss per share might seem like a small movement, if the stock was only worth 10c to start with then you are in trouble.
There’s a lack of volume in the market – Penny stocks often sell slower than other, better-known names so be aware that you may not always be able to shift your losing stocks.
Some penny stocks are unregulated – if you get a call from someone who tells you with absolute certainty that the Over-The-Counter stock that they are selling is the next big thing then walk away!
OTC stocks are often not on regular markets which means they are unregulated. This means that you are probably being sold a pup.
There are hidden profits in penny stocks
With all of these bad things in mind, then you wonder why anyone would possibly want to invest in penny stocks, but they do.
Remember of course our billion-dollar examples – penny stocks can make it big, and they do.
But if it was easy then everyone would do it so you have to remember that there may well be the next Apple or AMD out there, but just like gold nuggets, you need to go out there and find them.
So how can penny stocks supercharge your investment strategy?
When they hit, they hit big – now this is the nirvana for penny stock investors. The tiny company bought for pennies that suddenly becomes a unicorn.
It has happened before, and it will happen again, and the truth is that if you invest a small amount in 20 different shares and only one hits home then you’ll be very happy indeed.
Volatility is your friend – active traders and day traders, in particular, thrive on volatility. If a share never moves, then there’s no profit to be had.
Whilst in many ways volatility is bad news for long term investors, it’s great news for people who want to trade, and penny shares has volatility in abundance.
They are fun – don’t dismiss the idea of having a bit of fun with your investments. It doesn’t have to be all serious expressions and screaming ‘buy’ down the phone.
As long as you are only risking amounts that you are comfortable with then what’s wrong with having a bit of fun with a basket of risky penny stocks? Keep your blue chips for the majority of your portfolio and trade a few penny stocks to add a bit of spice.
They are a great way into the market – you can buy hundreds of penny stocks for just a few dollars so adding a few here and there as you can afford it helps you to get into the market.
They are also a great way to learn about the stock market, develop your investment strategy and learn as you go without risking too much capital to start with.
They are a great way of getting close to your investments – buying stocks in a business that you know and where you can see potential is a really good way of choosing your penny stocks.
You’ll understand the business at a much more fundamental level, and you’ll have a clearer sight of the quality of the management teams, both of which are vital if you are to spot winning opportunities.
Your next step
If you want to start trading penny stocks then the first thing to do is to suck in as much knowledge and experience as you can.
Make sure you visit as many sites as you can but don’t be swayed by grand promises of millions of dollars of profits.
Trading penny stocks can be profitable but it rewards people who do their homework and research their market.
Understanding what you are doing and why, and getting information, tips and advice from experienced traders all help the novice to make their way without losing their shirt.
If you choose wisely and have a logical and tested strategy, then penny stocks really can supercharge your investments.
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