Stock prices are often misleading to the common investor. Stock prices go up and investors mistakenly believe that the stock is a better buy. This is where many investors fall off the of buy low, sell high bandwagon.
A frequent pitfall for many investors is buying a stock for $2 because of the possibility of it shooting up to $100. Oftentimes, you'll hear investors saying that an $80 stock is too expensive for their budgets. Avoid this flawed logic because it will lead you to poverty. Your investment should be based upon the sum of money you put up, not the amount of shares you own. Whether you are able to purchase five shares or 10,000 shares, a $900 investment grows the same in both cases. A low share price does not mean it's a cheap or bargain stock.An additional problem with purchasing penny stocks is the lack of institutional ownership. Do you think your pension fund fiduciary is going to invest millions of dollars of retirement funds in a speculative penny stock? The answer is no, unless, of course, the fiduciary wants to end up in jail. Institutions move the market, so if they are not trading a stock, it can remain stagnant for years.If you are going to make speculative guesses, you should only use a portion of your overall assets. The probability of picking the next Microsoft is low, but who knows, maybe you'll get lucky. This should be for sheer entertainment. Don't let your retirement account ride on penny stocks!
