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Sunday, February 6, 2011

Why People Invest In Penny Stocks Instead Of Other Kinds Of Stock

Why People Invest In Penny Stocks Instead Of Other Kinds Of Stock : Of all the kinds of investments, penny stocks may be one of the few riskier investments that any investor can get into. But a wise investor is one who does his homework carefully, studies the market, and puts his money into penny stocks that can get him the profits that he anticipates.

There are mainly three kinds of companies that offer penny shares and these are newly opened companies trying to break into the market; companies that have experienced a downturn in the economy and are trying to get back on their feet; and companies that deal with basic commodities. Investors who choose to invest in these penny shares will put their money at risk but can expect profits even at that risk.

Brand new companies that offer new services and products offer penny stocks to attract more investors to invest with lower costs per share. Even with the low cost per share however, they will still get the investment amounts they need because penny shares have a minimum amount that investors have to invest in.

There are also those companies who fail to perform at par and end up suffering a downturn in the economy. These kinds of companies offer penny shares to help them pick up in their performance and profits. They want to attract new investors and try to get back older investors so that they can recover overall.

Basic commodities, like electricity or food, are products and services that will never go out of style. Investing in penny shares in these kinds of companies may offer less risk than the others because even in times of war or disaster, people will still need food and utilities for survival.

Since it is a high risk venture, it is best to do the proper research before opting to enter into investing in penny shares at all. The cost of the penny stocks is low but expect to buy in high volume because the companies need the investments to help them get back on their feet or to improve what they already have out on the market.

Why People Invest in Penny Stocks
1)Most of the people who buy penny stocks are small traders and investors. They are able to buy more shares in less money compare with blue chips. They can buy few shares of blue chips with capital, but 50-100 times in penny stocks with same capital.

2)They think, if they buy any penny stock at 1 Rs, it can go to 100 Rs also with risk of just 1 Rs.

3)They believe in Buy & Hold Strategy. They purchase stock and retain it for long periods of time, hoping that the stock will reach sky high in future.

4)They carried away by seeing few multibagger penny stocks that moved multi-fold in recent times. So they try to chase another one.

Unfortunately, these strategies never give rewards. Investors only buy on hopes and at end it goes completely worthless. Always remember, there is nothing called Low Risk and High reward in Equity market. If you think, stock is available at very cheap price and has huge upside. 99% Chances are the fundamentals are not good if the stock is trading at very low price means it deserve to be there otherwise some smart people would have already bought and it would have reached some high. Always remember, you are competing with most intelligent people in stock market. read more How to find multibagger penny stocks
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1 comment:

  1. AnonymousJuly 24, 2011 at 10:41 PM

    I read many think in internet about penny stock. Penny stocks are cheap for purchase and they have little chance of delivering the highest return on investment. But, most likely, a penny stock investment risk simply betting that lose money.

    penny stock

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