I know I was never an advocate for playing penny stocks & would have never thought that I'll venture into this field of play until recently when I thought to myself "why not allocate 5-10% of my portfolio to penny stocks?" First of all, I'm young & hence I'm able to take the risk. Additionally, the money that I currently have won't be needed anytime soon in the next 5-10years. Lastly, if I play penny stocks well, I can increase the overall value of my portfolio a little faster than if I were to invest only in the slow but sure way.
A pleasant surprise struck today when I was able to make a 50% gain over my initial capital by offloading one of the penny stock counters I bought 2 weeks ago. That's insane. 50% return on capital in less than 2 weeks. Which other investment vehicle/product allows you to do that? Now I know why some people don't bother investing the slow but sure way (5-10% annual returns) but are instead lured into trading penny stocks exclusively (>10% annual returns).
No doubt that penny stocks can make you rich extremely fast, it can also be excruciatingly painful when you lose your capital or have your money "stuck" when the stock price remains stagnant. As the saying goes, "high risk for high returns". I wouldn't say this is akin to gambling as I feel even though penny stock prices are largely based on market sentiment, there are still ways to make calculated risk, some basic chart analysis & simple understanding of trading volume can be applied before deciding which penny stock to buy. After you buy, it's all a waiting game. You just have to be patient & wait for the right time to sell your position. Penny stock prices are largely based on market sentiment which is known to be illogical & irrational. However, by keeping abreast of current financial news, you can roughly predict market sentiment for the next day or so.
No wonder there are people who drive flashy cars & live in luxurious homes when they are only in their 20s or 30s. That said, I also know of people who have burnt their hands so badly playing penny stocks that they have to resort to selling their house to pay off debts. One big life lesson to learn from bankrupts is to never ever ever ever borrow money to invest. Even if you wish to leverage on borrowed money, do so in such a manner that you can still repay off your debts even after your investments have gone wrong.
So are penny stocks an expressway to riches? Definitely a yes but will I ever be a convert? I would say no. I will never allocate more than 20% of my capital into penny stocks. Will I advise playing penny stocks to new investors? Probably not. For starters, I feel it's better to start with lower risk stocks to build confidence before advancing into higher risk stocks if your risk appetite allows you to do so. That's exactly what I did. I went into mid-cap stocks first then proceeded onto buying small-cap stocks & now, penny stocks. A common misconception is that all stocks have the same risk level. A person who has zero knowledge about investing will easily brush off the stock market as a dangerous playground meant only for the rich or industry experts/professionals. But I feel otherwise. In fact, it's always heartening to know friends who wish to embark on their own investing journey. I usually encourage them to do so as I feel Time is on our side; Our greatest asset is Time.
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