Buying Strictly 1 Cent Stocks
Q: Does anyone know of someone who invests only in stocks that have high volume, but are only priced at 1 cent? I have heard of this theory where a guy buys 1 cent stocks, then sells them either when they double or after 5-7 trading days. I ran a test, picking various 1 cent stocks, trading on different markets, and so far, I have a paper 60% return over 14 days. This seems too good to be true. In trying to keep it simple, I dont even know the names or what they do, let alone know anything about their finances.
A:
Your theory is nuts, for a couple reasons. Most any company will close
its doors when a stock price gets as low as .60. Don't be confused by
the term, "penny stock" which applies to any stock valued under $5, and
so is shunned by institutional investors. One such "penny stock" is
American Medical Technology, which does vary anywhere from
3.50. This company has long been undervalued and, one of these days,
will be sought after. It is true that some of these stocks have rolling
prices which make them attractive trading instruments. I wouldn't
necessarily trade in seven days unless my target price was realized.
Penny stocks are wildly speculative and are
not an investment but instead are a gamble. While it is possible to make
money from them, it is easier to lose money on them. I would suggest
that you take your money to a casino or try Lotto 6/49 instead of
investing in penny stocks. After all, it's not hard to win $10 on a $1
6/49 ticket, and the odds of doing so are probably more in your favour.
Also don't forget, that high volume in a penny stock is misleading. If
you look at a stock trading a 1 cent, you would need to own 100,000
shares to have a $1000 investment. I take a $1000 investment as being an
average for a penny stock. Therefore, if you divide the volume by
100,000 you will see that there is not as much volume as you originally
thought. Even at a volume of 30 million, this probably only represents
about 300 trades.
Sometimes there is beginner's luck, but for persistent players I don't think
there is much if any easy money in trading stocks whether they be penny or
bluechips.
In a bear market penny stocks lose their volume, thus their momentum, which
usually reveals their actual worth--pennies. I have seen companies stop trading,
go chapter 11, or shift to the pink sheets.
The usual definition for penny stocks is stocks under $5. Although some insists
it should be under $2. Some of the stocks I'm trading now are penny stocks but
were blue chips last year or last month or last week. So don't let anybody tell
you that trading penny stocks is low class or that trading blue chips is any
safer or more sophisticated. It is all a gamble although you might find more
scams among the pennies.
If you are interested in quick turnover watch the 'dollar stocks' during
transition phases between bull/bear/ bull market shifts. Dollar stock right on
the edge will move daily through 20 or 30% shifts, like.... naw, I won't tell or
ever recommend stocks.