Penny Stocks seem to get no respect with the stock “gurus”.?
I guess it’s the gambler in me, but the thought of discovering a company that will “change the world” is most exciting to me. Those stories of guys starting out in their garage and discovering or building something fantastic excites my imagination. Is picking a winner as hard as winning the lottery?
Penny stocks are cheap for a reason- either low earnings, low free cash flow, their in debt, they owe more than they spend, the company is on the verge of bankruptcy, they missed earnings 4 straight quarters in a row, etc.
For the most part, penny stocks are avoided for a specific reason by “gurus.” Plus the fact that there’s people who’ll hype of a specific penny stock they own and fabricate news about “THIS COMPANY IS GOING TO BE BOUGHT 3/05! STOCK EXPECTED TO CLIMB .23c!!!”. Twenty-three cents is nothing, but if the original share is only $1, that’s a 23% increase. Don’t get me wrong, it takes time for a stock to move that much on hype. Slowly but surely, some insider or high share owner is manipulating it. Way too risky.
As for the “guys starting out in their garage” companies, those are called IPO’s. And after being in business for xx amount of years, Initial Public Offering is the expected share price this company is expected to receive. That share price is based on how much they make, how much they owe, their free cash flow, etc. There’s probably a million business’ floating out there, just waiting to get noticed so they can jump on the wall street bandwagon and make profits. But because so many business’ fail in their first five years and you actually need investors willing to put money into your company, garage bands can take a decade or two just to make it.
Picking a winner isn’t hard if you do research, but finding a “garage” company that’s the next Microsoft, a lot harder than winning the lottery. Good luck1
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