Penny Stock fallacy

Stock market investment or trading is very popular among general public. Investment in stock market is the most risky investment compared to other sources of investment as choice of wrong stock can end you in a loss or even your whole investment to get eroded.

In stock market there are some stocks categorized as penny stocks, which trade below $5 and are most risky stocks compared to the high priced blue chip stocks because these penny stocks tend to be more volatile (either side) in their price movements. They are not only prone to stock market crashes, even can crash due to nonperformance of their business.read Penny Stock failure at http://www.barisera.net/penny-stocks-failure/

Penny Stock fallacy

On an average, only a couple of stocks out of hundreds prove to be real investment gems; else other end up proving to be a nightmare of small investors. In spite being most risky investment, there are common fallacies pertaining to penny stocks which make investor interested to invest into these stocks and end up falling in a trap.

These are as below:

  • Today’s blue chip was once a penny: The fallacy for most of investor falling into a trap believes that today’s blue chip like Microsoft and Wal-Mart etc were once a penny stock. The history of most common big companies for instance like Microsoft and Wal-Mart were once trading at very low price and  this makes investor believe that stock trading at $1 or only in cents will also become future blue chip.
  • Positive correlation to number of shares purchased to return: Most of the investors investing into penny stocks falls to this second fallacy and feel there is more room for appreciation and more opportunity to own more stocks. This convinces the investor that these micro-cap investors are rapid and super fire way to increase profits.