I’m a novice in regards to investing. So I assume “penny stocks” refer to very low cost stocks. However, I wonder, what is the strategy and purpose for investing in them? Besides hitting the stock-market jackpot by investing heavily in a penny stock that goes huge in terms of value, what are the more reasonable strategies to using them and putting your money into them?
Also, is there an institution / news investment orginazation that covers penny stocks well?
I've really wondered this, too.
I think the attraction is just that a small change in the price is a big change, percent-wise. For instance, if a stock goes from $20 to $20.01 that's only a what, 0.05 percent gain. But if a stock goes from $0.10 to $0.11, that's a 10 percent gain. In theory, if you had invested $1000 in the first stock, now it'd be worth $1005. But if you had invested $1000 in the second stock, now it'd be worth $1100.
Of course, it could go down by that amount just as easily as it could go up.
As far as strategy…I've usually been too scared to try, but I suppose if you spread your money across a bunch of them, and watched them like a hawk, you could cash out on the peaks and buy in the valleys just like any other stock, but on perhaps a shorter timescale.