| Last week we looked at a risky form of trading that is probably in our best interests to avoid. Day trading is not a good idea for those of us who belong to the "BUYandHOLD camp." This week, let's look at another possible threat to our hanging on for the long-term type of investing.
Years ago I read about a fascinating research study. Researchers took a single penny and placed it on a fairly busy sidewalk, with lots of pedestrians who walked to and fro. They then hid and tallied the results of exactly how many people would stop and pick up the penny and pocket it.
Their results? Only one out of 10 passerby would stoop to pick up the penny.
They then placed a nickel, dime, quarter, and dollar in the exact same spot and tallied. As you can guess, by the time they got to the dollar, it was 10 out of 10 who pocketed the found money. I believe the nickel got a score of 2 out of 10, the dime was 4 out of 10 and the quarter was 7 out of 10 people would stop and pick up a found quarter.
And…I'm often left wondering, as with many research projects that I've read about, so…what's the point?
And more importantly what does picking up a penny have to do with penny stocks?
What in the world are penny stocks anyway and why are they so bad?
My copy of Wall Street Dictionary has a very nice definition of penny stock. It is "a low-priced share of stock that is usually traded for less than $1 a share. These stocks are normally issued by speculative companies with a short or erratic revenue and earnings history."
The key words that grabbed my attention in this definition? Speculative and erratic both sound risky, which by now I have learned are possible red flags.
And after checking my many, many trusted sources I find that indeed, penny stocks should raise a red flag for any serious investor who wants to hang onto their money.
However, before we just say, "Oh…that's bad so we don't need to know more" I can't help but report that I'm just not quite ready to end it here.
Our friends the Motley Fool have some interesting examples of companies you may be familiar with that were considered penny stocks in 1987 and have had the good fortune of becoming household names today. You can read their book You Have More Than You Think for more details.
So, let's spend a little more time on penny stocks. I'm intrigued by this whole concept and I'd like to learn a little more about this before we move ahead.
So, let's find out if the next time we walk by a penny on the street…whether we should pick it up or not. It just might be this generation's next blockbuster. And we also need to be aware that there could be a researcher hiding and watching, to see if we pick up that penny or not.
Thank you for joining me,
Joyce |
