Monday, October 11th, 2010
A company that has shares that are listed for sale at a price less than $5.00 per share is categorized as a penny stock and there are plenty of micro cap stocks going cheap! You can start investing in micro cap shares without needing a lot of cash to start with and that can make investing in penny stocks a great way to learn about the stock market.
Small cap stock investing is associated with a lot of hype because investors are attracted to the promise of making large returns with a small initial outlay. But do many stocks start at 10 cents and go to $5.00? Although it is easier to own a shares in a company that can double i.e. go from 20 cents to 40 cents than it is for a stock that is $20.00 to double to $40.00 the cheaper entry price comes associated with higher risks. Penny stocks are generally very illiquid which means their shares can often trade infrequently and they have in general less shareholders.. Shares can drop very quickly and you could find in a very short time that you have ended up losing your entire investment. If this sounds too risky to you then you will do much better investing your money into other, safer investments.
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So if investing in penny shares fits your risk profile you need to know where to locate them.. You wont find micro cap stocks listed on the NASDAQ or the NYSE or any of the other large exchanges, instead you must look for them at ‘over the counter’ exchanges such as the pink sheets or the OTCBB. Penny stocks do not fall under the same regulatory procedures as other more conventional stocks, so even though they are legal they are still risky.
Small cap stocks are inexpensive to buy and that makes them attract to investors however you should refrain from investing all your money into the one stock but instead diversify into a number of stocks to spread out your risk.
A micro cap stock may be cheap to buy but that doesn’t always mean that it will be an investment that will perform well. Due to the nature of micro cap shares, investors can become a victim of fraud so it is crucial that you always check out the stocks before you buy.
After you have found some companies you like the look of you can watch their progress for a while and then decide if you want to buy some shares in them. Never just follow someone else’s tip blindly, but investigate the company yourself and then watch the stock to see how it tracks before investing..
You can reap the rewards from investing in the small cap stock market as long as you set yourself aside some time to learn all you can about what you are looking to invest in. You can apply what you learn by selecting some cheap, good value companies and the more you learn the better you will become and the more money you will make!