Long-Term Investing

Penny stocks

A friend of mine really likes penny stocks, and always tries to convince me buy some. But to me that’s the equivalent of gambling.

A lot of these penny stock companies are unknowns. If I don’t know what they’re about (most likely), I would be buying into some sort of hype, whether company- or industry-related. I’ve watched a few penny stocks and their prices are very volatile. I’d be leary of investing more than $1,000 in them.

They often go up 10% in one day, so I could potentially make $78 ($100 profit – $22 buying/selling broker fees). So I can make around 8% in one day. While that’s a very nice idea, good return, there’s of course also a risk involved. You can just as easily LOSE 8-10% or even more in one day. Sure, you can try and wait it out, but again: penny stocks – fickle, companies I know nothing about. And since I wouldn’t invest more than $1,000, I wouldn’t make much and would have to keep a close eye on the stock in order to sell at the right moment. It seems like so much stress for so little (in my case).

Right now I’m losing some money with what typically would be considered good, reliable stocks, and it’s not making me feel any better, but at least I know that I should probably hold on to these stocks, there’s very little chance they’ll drop down to $0. I wouldn’t feel so secure with penny stocks and would hit the panic “Sell” button much quicker.

There’s also the potential that the penny stock of your choice will go up more than 10% (not necessarily in one day), and if you’re willing to risk/invest more, it may be a good strategy for you.

Isn’t this what day-trading is? I think so. And they say that like 90% of day traders are broke. It’s pure gambling, I tell you!! 🙂