What are Penny Stocks? Are they good at investing? The terms “stock”, “stock trading” and “stock market” are often used interchangeably. Because they all refer to individual shares or stocks in general. Under certain circumstances penny stocks can be considered as a potential investment.
Despite the risks, small investors keep large sums of money in penny stocks at low prices. They are impressed by the amazing returns that some stocks have made over the past few months. If you too want to invest in this risky market segment, keep some rules in mind.
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7 rules for investing in Penny Stocks
Penny Stocks: 7 Rules Of Investing
These are 7 rules for investing in Penny Stocks:
Do not invest in large quantities
Do not lean too much on these risky investments. Penny shares should not exceed 10% of your total equity portfolio.
This means that your total investment portfolio is worth Rs. 20 lakhs and 30% (or Rs. 6 lakhs) of shares, you can get a maximum of Rs. 60,000 should be kept. Invest only what you can lose.
Invest only in 2-3 stocks
Diversification policy does not work here. Instead of buying a large number of penny stocks, invest in just a few scripts. Spreading your money in low cost stocks will not allow you to get meaningful returns from them.
If you invest Rs 3,000 per share and give it 25% return in a month, its profit will be a paltry Rs 750. Besides, it is easier to track 2-3 stocks than a 10-15 low portfolio. Priced shares.
Don’t forget after investing
Investing in penny stocks should be seen as a short-term gamble, not a long-term strategy. If the stock sees a sharp rise, it may be time to exit or at least record a slight gain.
Some investors may think that if they wait a year, they will get a tax deduction for the profit. But by then the stock may have plummeted. Set a goal and exit as soon as you reach it. Never hold penny stocks.
Do not trust anyone
Online forums of financial portals are full of advice and information about penny stocks. Do not trust the word of what other investors offer.
In this section, everyone is looking for big idiots who pay a high price for the junk in their portfolio. Also, take management requests with a pinch of salt. They usually draw a picture of a rose.
Buy large quantities of shares
Some penny stocks are traded very thin. For example, the average daily volume of Titan Securities for the past 1 month is only 3 shares. If you own 5,000 shares of the company’s stock, it can be very difficult to load them when you want to leave the stock.
Buy stocks with reasonably high trading volumes to have sufficient cash flow. Look at the monthly average and not just the one day trade.
Do not try to average your purchases
If you bought a stock for Rs.6 and now trade it for Rs.3, do not try to average your purchase by buying more of it. Dig a big pit for yourself and you will lose a lot of money.
Do not anchor a price and be prepared to record losses if the investment goes wrong. Instead of buying more when the price goes down, you should sell some shares when the price starts to go up and improve the average.
Don’t let success change your strategy
They say the four most dangerous words on the market are “it’s different this time”. Investors who make early returns turn away from overconfidence and start making mistakes.
If you do not want to lose your shirt in this market, do not forget the six rules of investment given above.