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Investment Strategies 4 - Penny Stocks

The next part I am going to spend my time on is the Penny Stocks.  What is a penny stock?  By wikipedia's definition "the official SEC definition of a penny stock is a low-priced, speculative security of a very small company, regardless of market capitalization or whether it trades on a securitized exchange (like NYSE or NASDAQ) or an "over the counter" listing service".

To me personally, I normally classify penny stocks as cheap and volatile.  Because in SGX, there are cheap stocks which are also started by small companies but their prices are not that volatile.  These stocks can be potential blue chips (PBS for short).  The stocks that I buy that are cheap are mainly these PBS. 

For beginners and novices.  Please shy away from penny stocks.  They are extremely addictive if you get hooked by them.  They are addictive as their prices jumps everyday and you are enticed to watch their price everyday to keep track of their movements.   And if you are lucky, they might give you great returns and the shortest period of time.  In short, its like gambling and if you do enjoy such thrills, do go ahead but set only a minimum sum(not more than $5000) to have some fun with them. 

I tend to shy away from these volatile stocks as I find its gambling and not really an investment.  You don't need to do so much studies on these stocks as their prices are normally fluctuated by the market forces.  If there are good news or rumours of a good buy, these stocks will rise and if you do catch the timing right to buy in, you will earn some.  But if you catch the timing wrongly.... I will say good luck to ya..

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