Getting Started

Why Penny Stocks? Understanding Their Appeal

16 Feb , 2016  

A penny stock is almost a fabled thing, much like a unicorn or a Miss America contest winner. The celebrity of being a penny-stock winner is just one of the many reasons that penny-stock investing has gained in popularity over the years. There are various reasons, some good and some not for why one might consider getting involved in the high-risk, high-potential-gain stocks in the “penny arena.”

For any readers that are familiar with hearing the terms penny stock but aren’t fully aware of what that means, let’s do a quick recap: Essentially a penny-stock is something little more than a stock whose price is low. If a stock price is over a dollar, typically it becomes disqualified for being considered a penny stock, but being at that price level alone isn’t what makes a penny stock. The other consideration is the fact that the company is usually a startup with a high potential growth possibility. Typically penny stocks that gain a lot of attention are around companies doing research and development in new experimental technologies, medicines and breakthrough inventions.

Based on what we’ve stated so far, it is already starting to sound like a penny stock investment is a really good idea. Whether it is or not has a lot to do with how you look as an investor. If your starting capital is too low and you have a shorter time frame in which you are hoping to receive the return, you should perhaps consider if you have the ability to stomach a loss, should one of your penny stock bets fail. If the answer is no, then penny stocks is probably not for you.

The typical commonplace wisdom about penny stocks are that they are always a bad idea and are a sure-fire way to lose your entire investment capital. Despite the fact that this is the traditional wisdom, countless investors are still flocking to the asset class, but why? The answer is simple and clear: Penny stock investors are a breed of investor that probably also frequents the casinos and the horse tracks. Too addicted to the thrill and legend of a massive win and perhaps too obsessed with the risk of failure as well, the penny stock investor is surely their own breed compared to the blue chip stock investor. What type of investor you decide to be will have everything to do with your values and goals as an investor. Make sure you decide which investment classes are best for your own personal situation.

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