Dalal Street Investment Journal - July 09, 2019

26 DALAL STREET INVESTMENT JOURNAL I JULY 8 - 21, 2019 DSIJ.in^

Special Report

Rewards And

Hazards Of

Investing In

Penny stocks constitute almost 12 per cent of all the listed stocks.

Geyatee Deshpande finds out how the penny stocks have performed when

small-caps and mid-caps have struggled in the past couple of years.

P

enny stock investing is considered most risky

investment in equity markets. If we go by the

historical data, we get some mixed signals on

investing in penny stocks. Having said that, the

outcome of penny stocks investing is almost always

dramatic and extreme, to say the least. The chances are investor

will either grow the money manifold by investing in penny

stocks or the investor may simply lose all of his or her

investments. Many believe the odds of losing the entire

investment in a penny stock are far greater than hitting a home

run and raking in huge profits. It is not very difficult to

understand why investing in penny stocks is considered risky.

Penny stocks are often companies dogged by fundamental

problems. These companies are usually scam hit, over

leveraged, facing legal issues, operational issues and many more

problems that impact the performance of the company

negatively. These factors drag down the prices of penny stocks

towards the bottom. The question is why invest in such

companies when it is known that such companies may be

facing multiple issues.

The lure for extraordinary returns in the short run is the only

reason behind such a risky adventure. Says Rohan Bora , an

investor with penchant for penny stocks, “I became a penny

stock investor by accident. I initially purchased a couple of

stocks for short term gains, but I soon realised I am holding on

to them for the long term, even though I was losing my money

from penny stock investments. One really needs to be sharp to

predict a turnaround in a penny stock. It is definitely not an

easy exercise, but it is a highly rewarding one. I think while

investing in penny stocks, it is important to know when to sell.

That to me is the most important aspect of penny stock

investing.”

While it is possible to generate good returns in penny stocks,

the basics of investments are most relevant while choosing to

invest in penny stocks.

Who should invest in penny stocks?

With extra care and caution as one approaches penny stocks

investing, building a portfolio of penny stocks may be a good

idea assuming you as an investor are able to :-