Dalal Street Investment Journal - July 09, 2019

DSIJ.in JULY 8 - 21, 2019 I DALAL STREET INVESTMENT JOURNAL (^27)
✓ Analyse the financials of all the penny stocks under consideration
✓ Ascertain that the source of information about the penny stocks is genuine and
not coming out of promotional material
✓ Understand the quality of management and believe in the revival plan that the
company has put in place (assuming that most penny stocks are troubled
companies)
✓ Ascertain that the scamsters ('pump and dump' players or manipulators) are not
targeting the company for their immediate gains
✓ Ascertain the overall market mood and which way the market is headed.
Usually penny stocks is the play area for market manipulators. The pump and dump
strategy is used by scamsters which involves luring inexperienced investors into
investing in cheap and worthless stock. What happens in such cases is that the
promoters drum up interest in scarcely known or unknown stocks. The novice investors
invest in such stocks, taking comfort from the positive statements on the stocks made
by the promoters via some advertisements or newsletters. Once the stock skyrockets to
certain levels, the scamsters start selling, leaving the ordinary investors high and dry.
These manipulations are not restricted to penny stocks alone, however, the frequency
of such events can be higher in penny stocks and hence extra caution is warranted.
Penny stocks' performance:-
For investors, it will be interesting to know how the penny stocks have performed in
general over the past five years. The table below highlights the performance of the
penny stocks across various periods. If we look at the data in the table below, the
average performance of the penny stocks is not scary at all.
Average Returns (Absolute %)
Year No. Of Companies 1 Year 2 Years 3 Years 5 Years
2014 771 16.21 67.45 170.44 110.96
2015 691 35.74 136.03 139.7 NA
2016 552 51.48 60.15 35.65 NA
2017 427 0.46 -9.23 NA NA
2018 431 -13.05 NA NA NA
Data as on July 1, 2019
If we consider top 10 performing penny stocks or even the top 50 performers in a
1-year time frame in the past five years, the results are more than impressive. The table
below highlights how the top 10 and top 50 penny stocks have performed in one year
in respective years.
Penny stocks : Top performers ( 2018 )
Stocks 1-Year returns (%)
Sahyog Multibase Ltd. 1021.43
Vikas Proppant & Granite Ltd. 856.82
Halder Venture Ltd. 828.20
Orient Tradelink Ltd. 674.43
BIL Energy Systems Ltd. 362.00
Danube Industries Ltd. 318.08
Virgo Global Ltd. 314.00
Quantum Build-Tech Ltd. 284.32
Jai Balaji Industries  Ltd. 252.46
CHD Chemicals Ltd. 218.99
Data as on July 1, 2019
Investors with
high risk
appetite and
with penchant
for financial
analysis can
look at penny
stock investing
opportunities