Penny stocks are those which trade at relatively low price and have low market capitalization. There is no general accepted principle about such definition. Generally, penny stocks in India trades between Rs 0.10 to Rs 5 per share. Several investors invest among Penny stocks in India and lose money year on year. Why investors are still buying penny stocks in India? Why we they not coming out of this?
About my story
I started investing in stocks almost 13 years back. When I purchased stock named SAIL which was available around Rs 50 during that time, it jumped to Rs 55 in a month or so and I got 10% profit. I was not happy because, I want to double my investment. I read several websites who used to fool and gave false impression that we can make huge money in very short term period by investing in penny stocks in India. I purchased a penny stock at Rs 0.80 (GV Films). After 10 to 15 days, it went to Rs 1.20. I made 50% profit in less than 2 weeks. I was excited. I again started investing at Rs 1.10 and I increased my investment to 3 times. Now the stock has fallen to Rs 0.65. Like any other investor, thinking it would fall further, I sold all such stocks at a loss of 40%. I have not learnt the lesson with that. I kept on investing in such penny stocks for almost 2 years and keep losing the money.
Common mistakes made by investors while investing in Penny stocks in India.
1) Looking at price not value: Investors look at the stock price and not value of the stock. Since it is available at damn cheap, it would be tempting to invest in such stocks. Once should realize that price does not matter, the value matters.
2) Stock volumes: Investors who invest in Penny stocks in India may not look at the volumes. Generally such penny stocks trade at low volumes. They are generally illiquid stocks. If there are no buyers for the stocks and you want to sell, the prices would fall and you may not even able to sell the stock in open market.
3) Upper circuit and lower circuits: Several investors think that upper circuit of a stocks means that there are only buyers and the stock price would increase drastically. In penny stocks trading, upper circuit generally happens as there are no sellers and the volumes are very small. It does not mean that there are only buyers and prices rise. If you invest based on this principle, you would be loser.
4) Manipulation of prices: In India, penny stocks trading are manipulated by stock brokers and promoters of the company. This is the known fact. In spite of knowing these facts, there are several investors who get into this trap and lose money.
5) Ignore success stories: Several brokers, websites and investors tell about their success stories on how they gained money by investing in penny stocks in India which are not authentic. People fall in this trap and lose money.
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Penny Stocks in India – Common mistakes made by investors
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