If we put it simply, penny stocks are those that we trade at a very low price and also has a low market capitalization. There is no general definition for the same and this is one of the main reasons why people seem confused about it. To clear the air, Avaneesh Parasar explains the things an investor should know before investing in penny stocks in India. Here in this blog, we tell you all about it.
What are the important things to know before investing in penny stocks?
Did you know that most people who invest in penny stocks end up losing their money as their share price keeps fluctuating? Therefore it is very important to keep a few things in mind before you invest in them. We are mentioning below:
- When there is a low volume it means low liquidity: According to Avaneesh Parasar, most penny stocks trade at a very low volume. This means if you want to sell them and come out then there might not be enough buyers. Therefore, you must always invest in penny stocks that have a high volume so that you can always liquidate them whenever required.
- Always look at the value and not at the share price: Penny stocks are available at a very low share price. It is the share price that tempts investors to buy such stocks. When you are investing in penny stocks, you must not think about how many shares you are getting instead you must look at the value these stocks have to offer. It is important for an investor to assess how good a particular stock is before investing in them.
- You must ignore success stories: There are many websites that have success stories related to certain people investing in penny stocks. Avaneesh Parasar cautions us to stay away from those. This is because, no matter how good these stories may seem, there is no mention of the investors losing their money or any failure. In short, they seem to paint a very rosy picture. It is crucial for you to be able to understand why a particular stock has gone up and what are the reasons behind its future prospects. Once you convince yourself of the same, you can adopt a similar strategy for all other penny stocks that you are interested in and then invest in those based on these strategies.
The stock market has a volatile nature and is known for the risks that are involved in it. Many investors have been on the receiving end of having lost their money in penny stocks. Avaneesh Parasar is of the opinion that investing in penny stocks is a huge risk – he does not say that you must not invest in them but you must do it with caution. You also need to assess yourself if you are a high-risk investor or a low-risk investor. If you are the former, then you must keep the above-mentioned points in mind and then plan your strategy accordingly.