All PENNY stock Investors think that they are SMARTER than the Company Management

 4^th December 2022

All PENNY stock Investors think that they are SMARTER than the Company Management

Dear Fellow Investors,

Namaste! Our post on 15 penny-looking stocks for investments was super hit as expected. Somehow, a normal person loves the idea of getting rich faster or without taking much pain or they want to earn risk-free money. If you are hell-bent on investing in PENNY stocks – you must think about the following factors.

1.   Why did the shares become a Penny Stock?

Many times, a good company becomes bad due to Adverse business situations. Their shares come down gradually and it becomes penny stocks. Eg. Thanks to CORONA in the last 2 years - Travel related segments – MOVIE distributors – Wedding planners – caterers were affected heavily. Some listed companies may have performed badly due to that and their shares might have come down.

Another reason could be promoters goofed up, mismanaged, or did the cheating with the investors. 70% of the cases according to me fall into this category. 

2.   If they have become penny stocks due to adverse business conditions – wait for the revival of the business cycle or business conditions. Look at the competency of the management to steer the business out of the soup. If you are convinced about the revival, you may invest some money.

3.   If the promoters are proven cheaters – then the stock has become penny stock due to them only. They have taken away the money from the company and now the stock is PENNY stock. Many times, such promoters try to mint more money in association with some operators. They manage the stocks for some period and GREEDY investors become their PRAY. In the recent past, LLOYDS electric management sold the company to HAVELLS and took out the money into their personal account. This is open cheating.

What I have learned from Buffett?

His basic lesson starts with two simple principles.

1.   Never lose money

2.   Always remember rule number 1.

If you are investing in PENNY stocks – the chances of your losses are very high. A normal small investor is always ready to buy 5000-25000 shares if they are available at Rs. 0.50 to Rs.2. His mental logic – If the shares become ZERO – he will lose just Rs. 0.50 to Rs.2 only. He is 1000% wrong. He will lose 100% of the capital invested in this kind of stock. There is a difference between the two sentences. 

As a Buffett follower, I am very skeptical before I invest or recommend such kinds of stocks. I only recommend 1^st kind of penny stocks.

Unique Feature of Shareholding patterns of Penny stocks Companies: -

Most penny stocks companies will have less than 20% promoter holding. It means promoters have sold their stocks at higher levels and taken out the money.

Now, if the company has to move up due to some good changes in business situations – promotors are the first to know about their company’s progress. Why the hell they are not buying back their shares or buying from the market? If they are not buying and you are buying, then you have a lot of faith in your luck and you assume they are FOOLS.

What NEXT?

There is no FREE LUNCH or PAINLESS EARNING. You need to invest your time in learning the invest from proper sources and use a lot of common sense all the time.

If you like our way of thinking and working – you can take personal inputs from us.

Follow me on Twitter @hiteshmparikh Or on Whatsapp - +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh.