The Art & Science Of Investing In Penny Stocks

Most investors ignore penny stocks on the assumption that they are not worth any attention simply because they trade in single and double digits. They are also exposed to high volatility and the chances of small businesses collapsing like a house of cards are high. However, there are also instances of investors growing their wealth on the basis of penny stocks. The article goes deep into the realm of such stocks to give a clearer picture

Just as all big things start small, the same stands true for investing too. Some of the best return-generating shares started out very small with their price valued in single or double digits. In other words, they started out as what the investment world calls ‘penny stocks’. As businesses grew in size, many of their shareholders grew in wealth along with the companies. A recent example is that of CG Power and Industrial Solutions. The shares of this company, trading in single digits at the start of February 2020 have rallied 4,716 per cent in the last three years.

The stock of the heavy electrical equipment maker, which closed at ₹8.78 on February 2, 2020 ended at ₹408.65 on August 16, 2023 on the BSE. An amount of ₹1 lakh invested in this stock at that time would have turned into ₹47.16 lakhs today. In comparison, the Sensex has risen by around 70 per cent during the period or ₹1 lakh would have turned to only ₹1.7 lakhs. Often stigmatized as the outcasts of Dalal Street, penny stocks have earned a reputation for leading many investors, especially the smaller ones, into financial ruin within the unpredictable and highly volatile realm they represent.