Wasting Time with Penny Stocks?

[Stockcense_Team]

Are Penny Stocks a Waste of Time?


Penny stocks sound attractive from the moment you hear that name. You can own stock in a legitimate company for a penny or less. This could be your chance to find the next Amazon or Google for just a penny. But are penny stocks a waste of time? The intrigue of instant wealth pulls retail investors into the stock market each and every day in search of the next big thing.

What Makes Stock a Penny Stock?

A penny stock is simply a micro-cap sized company, or a not-yet profitable growing company selling their stock for any price under 5 dollars per share. Some companies dispense their shares for fractions of a penny per share, that's right, you can actually purchase multiple shares per penny in some cases. The 5 dollar max per share is a rule of thumb but not an exact figure. It is based on the fact that many money managers' entry point for institutional, or large scale investments is around 5 dollars per share because of stability in prices at this level. Share of any company under 5 dollars per share can be volatile, or subject to large swings in price in either direction. So money managers and financial professionals tend to avoid stocks under 5 dollars in general.

Why Should I Buy Penny Stocks?

Penny stocks from fractions of a cent to a few dollars per share are subject to large gains as well as large losses in short periods of time. This volatility is attractive to some investors who don't mind risking their money for a big gain. The low buy-in price per share also gives the retail investor more shares for their money. The feeling of more shares for your money is appealing for those stock market investors who are just getting their feet wet in the investing world.

A simple example is the fact that you would only own 10 shares of a 100 dollar stock with a 1 thousand dollar investment, but you would own 100,000 shares of a stock valued at 1 cent for the same investment of your capital. The feeling of involvement with the penny company seems deeper than if you only owned a measly 10 shares of the larger, more expensive company. This creates a feeling of being a superior investor, but the risk of the penny stock going to zero is far greater than the 100 dollar stock going to zero. Conversely, the possibility of the penny stock climbing to 2 cents is better than the 100 dollar share climbing to 2 hundred dollars. So that's where the risk versus reward scenario comes from. Most new investors don't consider the is versus reward before investing, they are just excited to be able to buy so much stock with their money.

So should you waste your time with penny stocks? The answer lies within your own risk tolerance. Most penny stock companies are trading at these low levels for good reason. Low profit, unprofitable, or unable to make a profit are reasons why share prices are so low in the first place. Invest with care and keep in mind that old old adage, you get what you pay for... 

Learn more in our penny stock forum

[dazzle]

I feel like the entire growth market needs to rest. I don't think this is where the money is going over the next year. Seems like penny stocks overall are done for a while.

[adamalpha]

Penny stocks are not a waste of time unless you just guess. Take some time and learn technical analysis and valuation of these companies and try to sort out which ones can actually make money or even better which ones are already showing a profit.

Going on anti-social media sites and trying to pick winners because of what someone else said is a losing strategy. There is plenty of penny stock advice floating around plenty of stock websites so beware.

[Kraig]

Market sentiment says penny stocks are not a good investment right now. Look for larger cap stocks that can withstand market turmoil. Penny micro-capper stocks are not the place to be if you're looking for instant profit. You're going to risk your capital unnecessarily when the market is so shaky.

[adamalpha]

How will penny stocks perform in 2023?

Penny stock will perform better in 2023 versus a horrible 2022.

This is generally speaking of course, but the smalls took it on the chin for over a year now. There are some huge value stocks out there now that we're victims of a tight market

[dazzle]

I feel like the entire growth market needs to rest. I don't think this is where the money is going over the next year. Seems like penny stocks overall are done for a while.

Best Penny Stocks for 2023 might be all of them, looking to see some strength in growth stocks this spring, summer may be tough, maybe not.

[PlaceboTrader]

Penny stocks can be manipulated and that is why they are so risky. Are they a waste of time? Not necessarily, just very risky

[Kraig]

Market sentiment says penny stocks are not a good investment right now. Look for larger cap stocks that can withstand market turmoil. Penny micro-capper stocks are not the place to be if you're looking for instant profit. You're going to risk your capital unnecessarily when the market is so shaky.

Like I said, wait for market to resume bull stage. The early part of 2024 should shape up better for the penny stocks. Penny stocks aren't a waste of time under the right circumstances but you have to watch for the bulk of them to start moving. Seems like the penny stocks stall when the SPX is moving strong. Watch for the hype in the penny stock chat rooms and penny discords.