Penny Stock Investors

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Penny Stock Investors

Penny stock investors are drawn to penny stocks because of its low stock price and potential for quick gains. Among them, there are amateur investors and successful investors. Amateur penny stock investors buy penny stocks for the purpose of learning or entertainment, aside from the potential quick gain at such a low cost. They turn to online communities for advice on what stock to buy but successful penny stock investors go beyond online research when deciding which stock to invest in.

General Profile

  • In general, penny stock investors are attracted to penny stocks because of its two features: "the low stock price, which allows investors to buy a relatively large number of shares, and the potential for quick gains." Some penny stock investors tend to "buy tens of thousands of shares for a relatively low amount of money, hoping that the price will rise sharply over a short period of time."
  • Also, penny stock investors are considered "high-risk takers because the penny stocks they trade are speculative and there is always a possibility they may lose their entire investment." These investors seek rapid growth through a small investment and "are willing to make risky decisions in order to potentially make a very large profit." Many of them invest in penny stocks without consulting financial advisors.

Amateur Investors

  • Amateur penny stock investors, particularly the younger investors such as college students, have been drawn to buying penny stocks because of the stocks' low cost. These college investors don't have a large amount of money to invest that's why they prefer buying stocks that require less money to put in.
  • Aside from the stocks' low cost, these investors are also encouraged to buy specific penny stocks through the advice that they get from the internet or online communities such as Reddit. These online communities interest them.
  • Digital Ally, a company that manufactures body cameras for law enforcement, is one stock that has gained traction on these Reddit communities or subreddits. Digital Ally's stock then skyrocketed and had a 52-week high last June 9, 2020. That was the time when Reddit users have been discussing that "protests and greater interest in police reform will push police departments across the country to invest in such cameras."
  • Some student investors bought penny stocks for the purpose of entertainment, education, or a mix of both. They are not relying on penny stocks for their entire future since they also have their own separate retirement accounts.

Successful Investors

  • Successful penny stock investors are mostly traders. Multimillionaire penny stock investor Timothy Sykes of Paradigm Press is an example. He teaches his students to invest in penny stocks so they can trade penny stocks.
  • Successful penny stock investors are not tied to the companies they invest in. They mainly see their stocks as vehicles to profits. They are driven by profit and so they are "quick to cut losing positions and they don’t pin all their hopes on any specific penny stock, despite the upside potential of any of them."
  • Also, they go beyond online research when deciding which stock to invest in. They would call the company, speak to the employees, or try the products. They are not impulsive since they base their trades on research and informed decision. Also, they have an interest in monitoring the company on an ongoing basis so they can adjust their trade accordingly.
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