16-06-2023, 07:01 AM
There are 2 reasons why stocks are penny stocks
- the first is that they IPO as penny stocks.
- the second is that stocks become penny stocks because investors dumped them due to perceived poor prospects.
I will focus on the latter case. So for these penny stocks to become stronger it must be because:
a) the business fundamentals have improved or show signs of improvement so that they will eventually get re-rated
b) the business fundamentals were never bad in the first place. It was just that investors over-reacted and dumped the stocks due to herding
c) some scammer is pushing the price up hoping for some unsuspecting victim to rush in to buy. The scammer will then sell and leave you bearing the losses
Gamblers like to bet on penny stocks because it is so cheap that if they strike “lottery” they will make some money.
If you are a gambler, by all means, buy penny stocks blindly.
But if you are a bit more serious type of investor, you better have a defensible reason why you think the stock price will go up.
- the first is that they IPO as penny stocks.
- the second is that stocks become penny stocks because investors dumped them due to perceived poor prospects.
I will focus on the latter case. So for these penny stocks to become stronger it must be because:
a) the business fundamentals have improved or show signs of improvement so that they will eventually get re-rated
b) the business fundamentals were never bad in the first place. It was just that investors over-reacted and dumped the stocks due to herding
c) some scammer is pushing the price up hoping for some unsuspecting victim to rush in to buy. The scammer will then sell and leave you bearing the losses
Gamblers like to bet on penny stocks because it is so cheap that if they strike “lottery” they will make some money.
If you are a gambler, by all means, buy penny stocks blindly.
But if you are a bit more serious type of investor, you better have a defensible reason why you think the stock price will go up.