I have been watching penny stocks at a safe distance for some time now but do believe there is some money to be made. One trend I have noticed is a penny stock company will make the news and there will be a jump in price. More often than not that company will end up going down and end up right where they started or even lower.
In mind I am constantly thinking that the penny stock market is really really risky. I keep on asking myself if I should get involved in the market but the more that I keep reading about it the more that I see that it is really risky to get into. I have seen some people who have been able to really make some good money with penny stocks but I will tell you that there are more failure stories then success stories in this industry.
The idea of penny stocks is to be an early investor in a company that has potential to become something big. If you are dumping money in random companies, then it is just gambling.
I took a personal finance class once in college. The professor claimed to be a millionaire and gave advice on all sorts of investing options from the stock market to real estate. When it came to penny stocks, his advice was to completely avoid them because you can never win at them. Only mess around with them if you're ok with losing your money. He said that he lost a couple thousand with them once. He has a point too. The key with penny stocks from what I've learned, seems to be to buy them early and hope they rise quickly. Usually they rise quickly and then plummet and stay really low. They never go back to that high price once they reach it and fall. Of course, some companies and penny stocks never reach a high but just stay low until they fizzle out. I was watching a few penny stocks but ultimately, I think the risk is just too high to bother with unless you want to play around and already know what you're doing.
You can profit from penny stocks if you're watching them every single day like a hawk. It's a time-consuming effort, and you won't come out on top every time. These companies could fold and declare bankruptcy at any time. That's why such stocks are such a gamble, and most people aren't willing to take those risks. I can't say that I blame them either. Penny stocks are best avoided by beginners, and even those with some experience in investing, too.
The Taleb theory of investing where there is a fixed loss and the potential for infinite gain applies to penny stocks. The problem is the investor would have to make a lot of small investments spread over a multitude of penny stocks. He would have to ensure the stocks actually meet the Taleb requirement.
