Example of Buying Penny Stocks
When a person is considering buying penny stocks they’re looking for low price stocks that they can buy a large amount of. They also are looking for small companies that are on the verge of “breaking out”. Whatever the reason, there needs to be a understanding of the risks that are involved.
Buying penny stocks can be very rewarding or quite damaging to your portfolio. Research must be done to minimize the risks and increase the gains. You must look into the company’s history to see their growth in the sector that they are in. Most companies that are considered a penny stock (valued less than $5.00) are in technologies, biotech, and alternative energies. There are few that are in the other sectors like GameZnFlix (OTCBB: GMFX) which is traded on the OTCBB (over-the-counter bulletin board). The company is in the business of entertainment. Like Blockbuster and Netflix, they have an on-line video and games rental program.
The reason I speak of them is that in buying penny stocks if you don’t look at the company’s fundamentals you can lose a lot of money. You don’t have to go too far in the history, just enough to get the idea of what the risks are. In September, 2007 the company went ahead and offered a reverse-split for the outstanding stocks. For every ten shares that you owned they gave you one. They value was adjusted to be worth the same so you didn’t lose the value of the holdings. The new price was $0.10 a share. At that price you can buy 5000 shares totaling just $500. If the stock doubled (which is not hard for most stocks to do at this price range), you would make $500 on a $500 investment (a return of 100%). Unfortunately the company’s fundamentals were not in order as well as a positive revenue and the share price went down. Needless to say that the value of the stock has fallen to an all time low of $0.0001, which now makes the value of your holdings $0.50 (yes, that is 50 cents.)
At this point and you were to purchase 500,000 shares at $0.0001 it would cost you only $50. If this company was to turn it around (which I don’t expect) and the stock price went up to $0.10 the penny stock investment value of your portfolio would be worth $50,000 (a return of 1000%)
When you are buying penny stocks you need to know what the company is doing to grow. If you don’t, you risks may be more than you willing to take.
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