Rewards And Hazards Of Investing In Penny Stocks

Penny stocks constitute almost 12 per cent of all the listed stocks. Geyatee Deshpande finds out how the penny stocks have performed when small-caps and mid-caps have struggled in the past couple of years.

- Geyatee Deshpande

Penny stock investing is considered the riskiest investment in equity markets. If we go by the historical data, we get some mixed signals on investing in penny stocks. Having said that, the outcome of penny stocks investing is almost always dramatic and extreme, to say the least. The chances are investor will either grow the money manifold by investing in penny stocks or the investor may simply lose all of his or her investments. Many believe the odds of losing the entire investment in a penny stock are far greater than hitting a home run and raking in huge profits. It is not very difficult to understand why investing in penny stocks is considered risky.

Penny stocks are often companies dogged by fundamental problems. These companies are usually scam hit, over-leveraged, facing legal issues, operational issues and many more problems that impact the performance of the company negatively. These factors drag down the prices of penny stocks towards the bottom. The question is why to invest in such companies when it is known that such companies may be facing multiple issues.