Many people recommend buying penny stocks, you must have seen on tv or youtube. Penny Stocks? Should We Invest In Them? Your answer will be found in this blog, if not found, you can ask in the comment box. When we come to the stock market to invest, first of all, we often hear penny stocks and Blue-chip stocks. But in reality, which stocks we have to invest well, it mostly confuses. Now let’s discuss…
What Are Penny Stocks?
Penny stocks are those stocks whose market capitalization is very low and also the stocks trading at lower prices, such as rupees 1, 2, 5, 10.
Is it worth investing in penny stocks?
The market does not decide the price of stock by looking at smaller or bigger company. If a company is small but the company’s fundamentals are very good such as the management of a company is good, the debt is low, the company shows good growth, these types of companies market gives good value and price. But the company is big but having lot of debts, bad management, poor growth for these types of companies market gives bad value and lower prices.
Ex: A stock in the past was trading at ₹100,200,500 but now trading at ₹5 or 10 or lower price due to the bad fundamentals. So away from these types of stocks.
At one time a company called Unitech Limited was trade at a price of Rs 500 but now the company is trading at Rs 2-3.
One thing is that:
If the stock has fallen below 90 percent from the high, then the same stock has a 90 percent chance to falls more down.
At the time of investment, it is not that you just see the price of the stock only and go for investing, New investors mostly think that instead of buying 5 stocks in 5000, I should buy 500 stocks in 5000, so if there is a movement of 3 or 4 rupees in the stocks, then the profit will be higher. This thinking is wrong and in the penny stocks the risk is higher.
High stock price means Bigger company and lower price means small company?
Without technical or fundamental analysis it is wrong to invest just by looking at the price. Many people think that the higher price of the stock then that the bigger the company. But it is not correct.
You must know the MRF company. It is the best tyres company in India. Stock price of this company is trading up to Rs 63,700 and, And the ICICI Bank’s stock price is trading at up to 416 rupees. So which is big company? MRF or ICICI? While ICICI Bank big in size according to Market Capitalization.
MRF stock is so expensive because this company does not do stock splits and doesn’t gives bonus.
Should we Invest In Penny Stocks?
While investing, you should invest only by looking and understanding the fundamentals of the company. Only then your stocks can give you good returns in long run, and it is not necessary the stock is penny or any other category. A stock is good or bad it depends on the fundamentals their fundamental.
Before investing in penny stocks, you have to do a good fundamental analysis of the company. Because it is very difficult to find good penny stocks. And if you find a good penny stock, then it can become a Multibagger in the future.
Like Mr. Rakesh Jhunjhunwala is a successful investor in India. He had taken TITAN stock at a price of Rs. 4.00, now the same stock is trading at Rs. 1243.00. And they made a good of profit from this stock.
Many times the information of penny stocks is not easily found, so before investing in penny stocks, do a good fundamental analysis. And invest only a few funds in penny stocks. And make a diversified portfolio.