Archives
Blog : Warren Buffet and Britney Spears Take Back Seat to Penny Stocks
by John Whitefoot on September 21st, 2007
This was one of those weeks where, no matter what else was going on in the world, Wall Street was hypnotically focused on Federal Reserve Chairman Ben Bernanke. If someone had spotted Warren Buffet out-on-the town with Britney Spears, it would have flown under the radar. And maybe still is?
Investors opened the week tip toeing on egg-shell slippers ahead of Tuesday’s meeting of the Federal Reserve. Come Tuesday, investors sprinted. A euphoric Wall Street barreled higher after the Federal Reserve cut its interest rate by a larger-than-expected half percentage point.
Some penny stock investors and analysts were hoping for a rate cut of that size, most though were betting on a smaller cut. While some called the cut “overkill”, Wall Street seemed quite pleased.
On Tuesday, the Dow Jones industrial average responded by surging 335 points; its biggest one-day point jump in nearly 5 years. Potentially short-sighted, investors rallied on the belief that a return to easy money would revitalize the economy and corporate profits.
With his half-point cut, Bernanke may have opened the floodgates of cash; yet others see the cut as a high-risk bid to shore up the economy. A move that could prolong the housing market pain it intended to avert.
This of course means that it’s probably going to get worse before it gets better. After all, housing slumps do not end quickly; they grind down slowly. And, once they slow down, it takes time to gain momentum.
Now, if you want to add property to your portfolio…there’s no better time to buy than the present. Prices are down, bargains are up. Not unlike the stock market.
While penny stocks were not hammered like their larger peers during the market’s summer turmoil, Bernanke’s optimism has trickled down, nonetheless.
Despite the week’s optimism, investors are a fickle bunch, and I doubt it will take very much for the recent uptrend to cool.
As one market analyst said Thursday, "Any explanation of how stocks are doing has to be predicated over the two-day celebration of FOMC [Federal Open Market Committee] cutting interest rates. As we roll into day three of this Mardi Gras, it appears some logic has settled in."
Rollicking festivities aside, there are a lot of great penny stock companies out there trading under the investing radar. Stocks that are great bargains, stocks that should rise as the market recognizes their true value.
And for penny stock investors willing to roll up their sleeves and get dirty, the rewards outstrip the risk.