For the past several years, I have spent the majority of my time involved with the penny stock market. This has involved a whole host of different activities, such as attending meetings, reading through business plans, listening to investor presentations, and working on a select few projects. One thing that penny stock investing is not, and that is boring. You hear and see projects that range from sheer brilliance to the more often, complete stupidity. And while stupidity can be innocent enough, in many cases it has been conceived in an overt attempt to con the public by incorporating many of the latest trends and buzzwords. Which is why I often come back to this very basic question, ‘why buy penny stocks‘?
Really, why buy penny stocks? There simply must be better investments out there for investors, ones not wrought with risk. The odds against these fledging micro-cap companies are overwhelming, so how possibly can they be a good investment? In my opinion, the answer to this question comes down to the individual investor, their expectations, and their investment philosophy.
Lets get something out of the way from the beginning, penny stocks are uber-risky, that is not even up for debate. So, if people have come to Penny Stocks Research, looking for the next sure thing, well you can stop reading right here, you will not find it here, or anywhere else. In fact, I am of the opinion that no matter what market you invest your money, ‘sure things’ are about as common as a Unicorn, since both are mythical creatures of folklore. But, aside from the doom and gloom of the risks associated, there are some attributes that I feel make penny stocks a compelling investment for suitable investors.
Penny Stocks Represent Growth Opportunities
We all know why penny stocks are attractive to many people, they are cheap, at least in terms of the actual cost per share. There is something compelling about the concept that for a few hundred dollars, an investor can own thousands of shares (this of course ignores some basic investment information, such as the market capitalization of the company, asset value, shares outstanding, etc., but that is for a different article). Now, comparing these shares against larger companies, there is a solid argument that the price is not cheap at all, because in many cases these shares reflect no actual value in the company. When an investor buys a Blue Chip stock, that share represents ownership in a revenue generating company, the value is tangible to a certain degree. But in many penny stocks, the companies have no revenue or asset value to report, the value of a share of ownership is much harder to determine. So what is the allure of buying penny stocks when it lacks a measurable value? Well, in this writers opinion, we purchase penny stocks because they offer an opportunity for explosive growth and large returns on our investments.
Investing in an oil and gas penny stock during its exploration phase can be highly rewarding, especially if the company has competent management and is targeting an established region of previous exploration success. This where doing due diligence on penny stocks is vital. Look beyond the investor presentation, look beyond the professional website, look beyond the high definition webcast interview, and ask the right questions. Sure, there is opportunity to profit from the next great social media pioneer, but it is amazing how a simple Google search can eliminate potential candidates from the list.
Ships Passing in the Night
In many cases, people buy a penny stock not as an investment, but simply because they see a promotion or increased volume and look at the stock as a short term opportunity to cash in. This strategy is risky to say the least, but I would be lying if I didn’t admit to purchasing stocks in the past that I thought were getting a push and had a great chance at making big gains. Again, so long as this sort of trading is done via legitimate motives, and not the result of inside information, this can be an opportunity. One tool we are currently developing at Penny Stocks Research is a volume deviation tool which indicates which OTCBB and PinkOTC stocks are experiencing deviations of share volume from their 60-day running average. While this is hardly a conclusive measure to make an investment decision, the results can often provide both some interesting and useful information, and can be useful for making a short list of potential candidates to do further research.
Research, Research, Research
The point of Penny Stocks Research is to provide some very brief research which follows a consistent model and is dedicated to the penny stock market. Our goal is to follow a preset format and present information that is relavent and readily available to anyone who is willing to either look, send an email or make a simple phone call. These reports are not the basis to make an investment decision, but they should provide enough information to continue your due diligence efforts, and hopefully help in clearing an already murky environment. The fact is that while there are no guarantees in any investment, and investing in penny stocks is highly risky, the odds can be drastically reduced with a little effort and following an established system.
Which brings me back the original question as to why buy penny stocks? I can only answer this question for myself, as the reason I buy and sell in this area of the market is that it excites me, and I am interesting in researching emerging opportunities in the market. That is not to say that I don’t enjoy researching more established companies, but there is an element of exploration into the unknown with the nano-cap world that defines the market. And with this unknown also comes the risk, which is something that I have made a decision to accept, and do my best to avoid through research and hopefully a certain degree of skill.
Good luck in the markets, and please make sure to read our disclaimer carefully, we are not just paying lip service, before making any investment decision, do your own independent due diligence and consult with a professional, and this holds true for both penny stocks and blue chips… and anything in between.
