May 20, 2012

Posted by in Penny Stock | 0 Comments

Playing The Nickel Slots: Are Penny Stocks Worth It?

Many new investors wonder, “Are penny stocks worth it?” Some experts compare the small cap markets to gambling and state people like to go with smaller priced shares because the risk for loss is less. A regular casino participant once said that she played the nickel slots because she lost less than playing the quarter slots. In reality, of course, her potential losses depended on how many nickels she fed the machine. The same holds true with penny stocks. A few dollars may not seem like much, but when you buy and trade in volume, you can lose thousands.

Risk or Reward: Are Penny Stocks Worth It

At the same time, the payout potential is present with some penny stock ventures. Not all of these stocks are priced for mere cents. The term penny stock usually refers to any stock that is priced under $5 per share. When you ask yourself are penny stocks worth it, you need to consider both the capital involved and the potential for payout. After all, if a $4 small cap stock moves up to $8, you make a 100 percent gain. According to experts the risk is sometimes worth the reword.

Are Penny Stocks Worth It: Hedging Your Bets

Experts advise small cap investors to look for diamonds in the rough. Companies that fall from dozens of dollars a share to a few bucks may have declined for a specific reason. Litigation, financial instability and poor product planning are all reasons companies can drop from the top of the ticker. If you can pinpoint the reason for a fall, then you may be able to answer, “Are penny stocks worth it” with a yes. Companies who have well thought out recovery plans or who rise to the challenge can rebound over a few years. A company that fell from $25 per share to $2 per share may only make it back to $10. If you buy at $2, however, that is a sound profit.

Stock investing is not a casual sport. Uneducated investors should seek advice and assistance from experts, even if they are starting with small cap trades. The more you know about the market, the better prepared you are to provide an affirmative answer to the question “Are penny stocks worth it?”

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