Penny Stocks- To Invest or Not to Invest?

Do you think that the capitol you would like to invest isn’t enough to hit the big markets? If so,  the there are many options to consider, amongst them is investing in penny stocks.

Occasionally you may not want to spend all your money or simply don’t have enough to buy more then a few shares from components of the Dow Jones or Nasdaq. Even if affordable in some cases there isn’t a high chance of  a large return, mainly due their already high price and the small amount bought. In these cases can you turn to micromarkets, where penny stocks can be bought for under a dollar. As surprising at it may be, there really are shares which only cost a few cents, but carry huge potential in the long run.

Choosing Penny Stocks Wisely

Don’t be discouraged by the low prices of these shares, compared to those of blue chips. There may be many reasons for this, only after doing detailed research can you decide if it is worth investing in one of these companies. There is a huge selection to choose from, because thousands of businesses have gone public to earn monetary funds for further expansion.

Due to the low volatility of micro markets, daily trading is unreasonable under these circumstances. This is why you should thoroughly inspect the company and judge what it can be worth in the future. You should view this option as a long term investment that carries risks, however with proper precautions it can lead to great returns.

Choose wisely and never judge on what the company shows momentarily, but what potential it holds. Always think of the future and how this chosen business can expand or raise revenues in the time that has elapsed. Things to look for when choosing:
– underlying technology
– a great idea, concept etc.
– signs of expansion
– is there a chance or reason a larger company would buy it?
– temporary cash flow problems

It’s usually an outstanding idea or concept  that helps a company expand over time, but due to the lack of funds, marketing or having a larger debt can act as a restraint. It’s a good idea to observe one for a few months to see, how the stock prices change and how many investors bought in. It most likely isn’t a wise choice, if stocks stagnate over this time and don’t show any movement towards positive territory.

Risks- Penny Stocks

A very important thing to watch out for is being scammed. Due the small price, there have been many cases where an individual or an organization bought a huge amount of stocks, resulting in soaring prices, after which the buyer usually started intense advertising over the internet. Viewing recent history the stock seemed like a great buy. This lead to high demand which drove the prices up. The investor who originally started the scam then sold his shares, which lead to a large drop in prices, causing losses for other shareholders.

There is also the risk of a company not fulfilling the hopes attached to it, over time, stock prices can stagnate, decline or in the worst case scenario the business files for bankruptcy. These risks must be considered and mapped out well, only after this should you invest your money in penny stocks, which in good cases can lead to great returns.

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