why do people invest in penny stocks

For as long as the stock markets have existed, people have looked to make quick money. One of the categories of stocks that investors often look to are penny stocks. That being said, penny stocks usually entail small businesses, future growth and the possibility of these stocks generating huge gains. But besides these reasons, why do people invest in penny stocks?

Penny Stocks & Impatience

It is also true that since penny stock trading involves lower share prices, it is often seen that impatient investor go for these stocks. The hope is to make a quick killing in the markets with smaller sums of money. It is not necessarily a bad thing since the volatility of penny stocks appeal to them and although the losses might not be too big at a monetary level, the potential upside can be highly appealing.

That being said, impatience can also lead to bad decisions. This is something that investors need to guard against. For instance, the investor might sell a penny stock after it gains a dollar or two and it might turn out that he sold too early. Though “no one went broke by taking profit,” leaving healthy sums of money “on the table” can be an ego killer. There’s also a possibility of seeing extreme losses too. Though the monetary loss may not be great, it isn’t unlikely for penny stock prices to drop 50% or more within a single day.

Penny Stocks Attract Newbies

Other than the impatient investors, the newbie investor is also someone who often gravitates toward finding penny stocks to buy. The possibility of owning a range of small priced stocks and the potential price volatility often appeals to them. In addition to that, if one manages to invest in penny stocks and become profitable, then that is definitely something that appeals to new investors. Many times you’ll hear success stories before you learn how to buy penny stocks.

Experts often say that penny stocks might often prove to be the best opportunity for new and small investors. The investment needed is not usually large. There’s also the possibility of making a significant gain if the right stock is chosen.

Penny Stocks & A Small Portfolio

Last but not least is the investor with a small portfolio. These types of investors are often attracted to penny stocks. Since they have a smaller amount of money to invest, these types of stocks are more appealing.

Some investors with small portfolios might choose to stay inactive in the market. There are others who make a beeline for the next big thing in penny stocks and try to make a steady profit. At the end of the day, investors need to know the risks involved with penny stocks and how to trade them effectively. Becoming a profitable investor involves more than just the size of one’s portfolio. Check out some of our penny stock basics articles to get you started on the right track. And send us an email if you’re interested in getting a detailed overview of penny stock investing.

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