Sunday, July 8, 2012

What are penny stocks

As the name suggests, penny stocks literally means stocks which trade for less than a dollar.. that is, their price is only in pennies. Thus the name penny stocks. Well, though this is the literal description, typically penny stocks is used to denote any stock which is low priced, is of low quality (management, financials, products or services etc), and typically has no fundamental reason for movement as their fundamentals are crap and never change.

But fact is that they still move around. And they move around a  lot. Plus the biggest advantage is that because they are priced so low, one can buy huge quantities with less amount of money, and since they move big time also, the possibility of making large gains is quite high as compared to with larger stocks. Obviously, the probability of losing money is also high, but if one is careful, buys judiciously and holds onto it ultimately one will make money. As it is penny stocks trade at crappy prices and crappy valuations, how much lower can they go.

Where as whenever there is some meaningful change in fundamentals they will appreciate multiple times their values.