Should you invest in Penny Stocks?

People find the word Penny quite interesting. Anything that you get in pennies will particularly attract a huge chunk of people. Now when it comes to stocks, most people get fascinated towards penny stocks. They like the idea that they would own a part of the company and that too at such a cheap rate. Now that’s where the real misconception creeps in. Penny stocks might literally kill you and take you on a dooms ride.

You don’t agree? Well here is one real life incidence that I encountered with a penny stock that I bought 7 years ago.

I had my eye set on a particular manufacturing stock that had gone all the way down from $10 to $3. Now that I felt was really a bad phase for the stock and this specifically attracted me towards it. My friends also told me that this was probably the right price and right time to buy it as it might shoot back to $10 or even higher levels. When anything like this happens you just need to do some analysis and then trust your instincts rather than trusting anyone else. I was blindly in love with this stock at that price and there was the catch.
I bought 10000 stocks at $2.65 hoping that it would shoot up in a few days. The very thought that even if it goes to $5 I could make up nearly twice the money was really my motivator. Every quarter, results were announced and the stock plunged even further. In 9 months the stock was down to $1.8. I thought it needed one upsurge and it could go to my anticipated levels.

The problem however was that I didn’t realise that when a stock reaches those levels it becomes highly manipulative. Traders extract everything out of it and it completely loses its value. The first thing I really should have considered was the fundamental value of the company I was investing into.
Had I invested the same amount in a strong company I would have made up significant gains. But the thirst of making some fast money brought me into this never ending death trap. Also, I didn’t have any stoploss in place and that backfired like anything.

In 2 years the stock had gone to sub-dollar levels. I repented my decision to invest in a penny stock. A good lesson learnt. The desire to earn fast money is not bad. But you must never invest in a stock that has fallen to penny level.

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