Are Penny Stocks a Good Beginner's Tool?

Discussion in 'Penny Stocks' started by forehandflick, Jan 30, 2015.

  1. forehandflick

    forehandflick Member

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    Many folks have gotten into trading penny stocks because of the little amount of risk involved. I'm thinking of getting into investing in the stock market more frequently, but I think I need more practice first. Do you think that penny stocks are a decent, inexpensive way to practice investment techniques? Or do these kinds of stocks hold too much volatility and variance to be an accurate indicator of how the rest of the larger market plays out? Should I be practicing in a different way or should I be reading more research articles and advice columns first?
     
  2. crimsonghost747

    crimsonghost747 Senior Investor

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    You should definitely read a lot more before doing anything. Penny stocks are just about the worst way to practice and come with extremely high risks.
     
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  3. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Any fooling with pennies you might do as an advanced investor who knows what to look for and what to avoid should be done with a very limited amount of your $. Perhaps you can allocate 1% of your portfolio to such risky trades / investments, and limit any one penny stock position to 0.1% of your portfolio.

    So if you have $100k you're playing with, maybe have $1000 at the most ($100 would probably be better) set aside for this type of thing, and buy no more than $100 (or $10) worth of any one low priced stock. And if / when that $1000 (or $100) is gone, do no more of that type of "investing".
     
  4. User911

    User911 Well-Known Member

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    Hello,

    I would not start your trading with penny stocks! I think you need to decide what your investment goals are first. Do you want to have income (dividends) or are you willing to sacrifice immediate income because you prefer to see high growth now with potential return later on? Everyone has different goals. Right now, I am more interested in dividends, although I did see one penny stock that interested me. I would not invest thousands into it, but if I bought $50 or $100 bucks that wouldn't kill my budget.

    But overall, my recommendation is to think long term, (decide what your long term goals are) and then do research from there. All the brokerage accounts have tools which can help you find what companies pay the best dividends or which companies, ETFs, etc. that are considered to be growth ones.
     
  5. Flexin

    Flexin Member

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    The risks are high, but you can put a smaller amount of money at risk.

    I think the best way to practice is to use a stock simulator. You can practice with the big stocks, learn and keep your money safe.

    Penny stocks are not a great way to learn in my opinion. Things move too fast. I have bought penny stocks. I used money I was willing to lose. I did profit on a couple of stocks. Had a chance to make it on two more but my account took too long to set up. But in the end I lost the money. One CEO was lying through his teeth. If he was telling the truth that would could have been nice. If I put more in I could have got out at one point with a decent profit but I was playing it too safe. So my only option was ride it out or buy in on the dips and put more money at risk and then try to get out. Many said they did buy in on the dips to make have a chance to make more money if he was telling the truth. Some claimed to buy an sell 5 to 10 or more riding the waves. That one crashed and burned. I did lose the money I was willing risk. Took a couple of months but I did lose it.

    I have done better with sports betting. Easier to research and less stressful then penny stocks.

    James
     
  6. Rainman

    Rainman Senior Investor

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    Dabbling in penny stocks is probably the easiest way to hate the stock market. The risk of losing most, if not all your money is pretty high. A beginner needs to take measured risks and buy only stocks with the potential to rise even if it's by small margins only.

    Please remember there's little difference between gambling and investing in penny stocks.
     
  7. Corzhens

    Corzhens Senior Investor

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    I am not good in trading and I honestly admit that I have no enough knowledge on stocks. But with the mention of penny stocks as little investments, I guess it is a good way of learning the stock market since the stakes are low and negligible when it comes to losses. Again, it is a good way to learn so those newbies in the stock trading can engage in it to feel the trading in what they hold - penny stocks. But for conservatives like me, I don't think I can indulge in such investments because any investment is a risk and I am not a risk-taker.
     
  8. moneyman

    moneyman Well-Known Member

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    The biggest beginner's mistake would be starting to invest in penny stocks. It is advanced level business which needs large amount of knowledge and can't be traded profitable by anyone. You could easily lost your whole investment without knowing how to trade them lucratively.
     
  9. evelin

    evelin Well-Known Member

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    The thing about Penny Stocks is that you aren't really prone to losing much in case your choices make you bankrupt, but you must keep in mind that your return share won't be as fruitful as other opportunities in the Stock Market. You invest pennies, you gain pennies most of the times. But it's good if you need money fast and you know what you're doing.
     
  10. RavenLily

    RavenLily Member

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    I was thinking of investing in penny stocks and I am so glad I came here before I did. I think I have a good game plan so far based on what I have read from the advice given in this thread. I was planning on putting a little bit of money into it, rather than a large sum, just to see what would happen if I did it correctly. I also used some online stock simulators to test the waters so to speak. It does seem like these stocks come with a higher risk than the larger, well known ones, due to their possibility of crashing and burning, but it also seems like a good way for a newbie to invest very small amounts of money and learn the trade.
     

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