The five biggest lies you've been told about penny stock investing

by , 08 November 2018
The five biggest lies you've been told about penny stock investing
When you've been around the penny stock investing industry as long as I have, you get tired hearing the same old lies about penny stocks over and over.

While these stories don't affect me at all, I am tired of how they discourage investors that are eager to start, and to learn more about the opportunities out there.

So, give me a moment of your time today to tell you about the lies, and myths of penny stock investing - and what you need to know not to fall a victim to these lies.

 

Lie #1 – You need hundreds of thousands in capital to start investing

Most people will tell you that you can’t make money from penny stocks if you don’t start out with thousands, if not hundreds of thousands of rands.

And for a long time that might have been true because of high trading costs from brokers.

But that’s no longer the case.

You see, there are brokers these days that don’t charge you any minimum brokerage costs. Only a small percentage of the total.
That means you can start out with a couple hundred rand!

And, thanks to the profit potential of penny stocks, hundreds of rand can turn to thousands, and thousands into tens of thousands sooner than you’d think possible.

Lie #2 – You will lose all your money investing in penny shares

“You'll lose all your money if you trade penny stocks.”
This lie stems from the belief that trading penny stocks is much riskier than other investments.

The fact is, any form of investing in stocks will always invariably involve risk. Take Steinhoff, it was one of the largest companies on the JSE – and a true market darling. Yet it nearly went bust and investors in the company lost nearly all their money.

The only way you will lose all your money trading penny stocks is if you don't bother trying to minimize the risk. The key is to look to MINIMIZE that risk! It's as simple as that.

In more than a decade of investing in penny stocks I have never been invested in a share that went bust, with me losing my entire investment.

Also remember, starting your own business incurs high risk.

Does that stop people from doing it? No. And you know what?

The people who succeed in starting their own business are the ones who minimize the risk. They do that by researching on how to successfully start their own business by reading, talking with people and taking action. The same thing applies to penny stocks.

You will not lose all your money by trading penny stocks provided that you minimize your risk by researching, learning, and practicing trading before starting.

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Lie #3 – There’s no liquidity in penny stocks

What do people mean by liquidity? Liquidity simply means having enough volume to easily buy and sell your shares. For example, if a penny stock only has two trades, its liquidity is said to be low.

There are not enough traders to buy and sell.

However, if a stock is experiencing huge amounts of trades, thereby indicating the presence of a large number of traders, its liquidity is said to be high because you can easily buy and sell shares.

While it is true that penny stocks don’t have the same liquidity that Blue Chip shares on the JSE have – they don’t need that much liquidity either.

In most cases you won’t have trouble buying or selling R10,000, R20, 000 or even R50,000 in most penny stocks.

Typically, I monitor penny stocks and only invest in the ones where trading volumes are higher than R50,000 a day averaged over a month. Right now, there are 128 penny shares on the JSE with that kind of volumes.

Lie #4 – Penny Stocks sell for cheap because they are bad quality businesses

Penny stocks have low share prices because they are small companies – not necessarily because they are bad businesses.

The fact is that share price simply does not matter — the quality of your investment does.

And there are many penny stocks that are high quality businesses that have been paying dividends for years and growing their profits and market shares consistently.

But, because they are too small for many large institutions (with hundreds of billions to invest) they simply don’t get the attention that bigger companies do.

Lie #5 – Good investors never lose

If you look at the papers, or speak to people, the expectation is that making money when investing means you are never allowed to lose.

If you believe this, you will soon be disillusioned and unhappy to continue investing.

You will lose money when you invest in stocks.

Whether it is penny stocks, or even the safest dividend stocks.

I hope it doesn’t sound like I’m encouraging you to take losses.

I’m all for learning opportunities, but I’m also all for minimizing my losses so I can keep building my portfolio and enjoying the lifestyle it affords me.

And that’s what’s important. You need to be able to limit your losses.

You do this by never betting the bank on a single stock, and by cutting a loser at the right time.

Here’s to unleashing real value,

Francois Joubert,
Editor,
 Red Hot Penny Shares

PS: I reveal in this FREE report: How to make big money in the exciting world of Penny SharesDownload your FREE report today!

 


 

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The five biggest lies you've been told about penny stock investing
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