“Penny stocks offer an incredible upside for potential investors.”They also offer incredible downside. That’s the nature of highly volatile investments.
“Low prices allow novices to explore the markets, without risking an extensive amount of money.”Nonsense. You can just as easily buy one share of a $100 stock as 100 shares of a $1 stock. Either way you’re investing $100. I don’t recommend either investment because the commission (likely $5 or $10 or more) is too pricey for such a small investment.
“If the stock were to dip in price, the investor will not have lost excessive amounts of money.”More nonsense. If you’ve invested $100 and the stock goes down 50%, you lose $50 whether you have one share that dropped from $100 to $50 or 100 shares that dropped from $1 to $0.50.
“Another advantage to penny stocks is that they are easy to buy.”Penny stocks are no easier to buy than “regular” stocks.
“The biggest advantage is the potential for very high returns on investment.”There is also the potential of very high losses. Unfortunately, high volatility is bad for long-term returns.
“It is not uncommon for some penny stocks to double or triple in price in extremely short periods of time.”It’s also not uncommon for penny stocks to drop to near zero in extremely short periods of time.
People tend to like penny stocks because they seem cheap, but this is an illusion. Companies divide their ownership in some number of shares. The number of shares is quite arbitrary. If a company is worth $100 million and has a million shares, each share is worth $100. The company could just as easily issue 100 million shares so that each share is worth only $1. Don’t be fooled into thinking that penny stocks are a good way to put your toe into the stock market.