I just watched a few YouTube videos about buying penny shares. They scared me. I won’t name any, but I see things like “Make $500 a day in penny stocks,” and other click-baity names.
Do you know what I learned watching them? Nothing useful. They all had a few things in common, mind.
The presenters all talk super-fast. They show lots of intra-day charts, and they talk about trading in and out, based on patterns in the wiggly lines.
They always show what’s already happened: “Look, if you got in here, then got out there, you’d have made a bunch“.
Low prices
Why penny stocks? One claim left me speechless. The person said low prices give you more flexibility over the number of shares you can trade for modest amounts of money.
Wait. What?
That’s complete nonsense. Want to invest £500? It doesn’t matter a bit whether the shares are priced at £5 each and you get 100 of them, or a penny each and you get 50,000.
Nobody in their right mind ever wants to buy or sell just a few pennies’ worth of shares at a time, do they? Doing that when brokers charge around £10-£15 per trade would be madness.
Share picking
None of the penny share folk I watched said anything about how to identify which businesses are likely to grow their value in the future.
The closest was that companies don’t want to have penny shares, and want them to be worth a lot more. Well, duh! So why are they down in penny share territory to start with?
It’s usually because they started a lot higher, and then something went wrong. And things could still go a lot wronger.
Lose, or gain?
So that’s how we can lose money on penny shares. Trade in and out, try to catch hour-by-hour chart moves. And just assume that penny shares will go up because, well, they’re down.
What’s the other side of the coin? Is it possible to make a lot of money from penny stocks? Oh yes, and many have done so.
What’s the trick? There really isn’t one. We just buy shares in quality companies when we think the prices do not reflect their long-term value. And then we hold for years.
You know, the same way we go about finding any shares to buy, whatever the price.
Big dividends
If I could buy shares for a penny that paid me a 10th of a penny per year in dividends, I’d snap them up. Well, I would if I had confidence in the business and its ability to keep the cash going in the years ahead.
I mean, it’s a 10% dividend yield. And £100 a month invested at that rate could net me more than £70k in 20 years. Plus any share price gains. It would be the same as putting my money into shares priced at £10 with a £1 dividend.
My bottom line? Yes, penny shares can make profitable investments. Just don’t fall for the hype.
