Penny stocks, also known as micro cap stocks, are low priced stocks that typically trade for less than $5 per share. While these stocks can be incredibly volatile and risky, they also offer the potential for significant returns for investors willing to take on the added risk.
In the world of investing, there are two main strategies that investors can use to approach penny stocks: offensive and defensive. Offensive investors are willing to take on higher levels of risk in pursuit of higher returns, while defensive investors seek to minimize risk and preserve capital.
For defensive investors looking to explore the world of penny stocks, there are a few key strategies to keep in mind. One of the most important is to do thorough research on any potential penny stock investment. This includes looking at the company's financials, management team, industry trends, and any potential red flags.
Additionally, defensive investors should be wary of penny stock scams and pump and dump schemes, which are unfortunately common in the world of low priced stocks. These scams typically involve promoters touting a stock's potential to unsuspecting investors, only to sell off their shares at an inflated price once the stock price has been artificially inflated.
Another defensive investing strategy when it comes to penny stocks is to diversify your portfolio. By spreading your investments across multiple penny stocks, you can help mitigate the risk of any single stock experiencing a significant decline.
While there are certainly opportunities to be found in the world of penny stocks, it's important for defensive investors to approach these investments with caution. By doing thorough research, avoiding scams, and diversifying your portfolio, you can increase your chances of success while exploring the world of penny stocks.