Lately we’ve been hearing a lot of drumbeats for big stocks. But really, at the end of the day, few of us can afford to invest enough money in big stocks…at least enough to make a difference.
Plus, big stocks don’t give penny stock investors the kind of yield they’re looking for. Most serious investors settle for returns of 5-7%. Penny Stock investors are not.
So while large-cap stocks on Wall Street helped propel the Dow Industrial into record territory, it’s important to remember that since the start of the year, small-caps have held their own.
Look at small company stocks in 2006. The Russell 2000 index of small company stocks is up 16% this year. The most popular penny stock index, the Davren Penny Stocks Penny Stock Index, has risen 9.26% since early November.
Of course, small businesses, by definition, grow faster than large ones. And with these increased profit numbers, the risk is greater. For many small companies, all it takes is the exit of a big shareholder to wreak havoc on the stock price.
Small cap stocks present unique risks often unanticipated by many traders and investors. These lesser-known games can zoom higher under the right conditions because there are fewer tradable stocks in the market. But they can also fall back down to earth quickly after low incomes or adverse news jeopardize their success.
Nevertheless, the market continues its love affair with small caps, especially once undervalued small company stocks; affectionately referred to as “Value Stocks”.
Growth investors are first in line to buy shares of any new company. They pay high prices for companies that promise to generate huge growth. Value investors look for bargains among stocks that have been shot down and rejected by other investors, or simply because they’re not trending this month…or hour.
While the gap between penny stocks and small caps has narrowed in recent years, value stocks continue to flood growth stocks, as they have since the early tech bubble burst. of the 2000s.
Large-cap growth stocks had a lackluster year, up just over 7% in 2006. That compares to a torrid 26% for large-cap value stocks.
Do you think you missed your chance to acquire untapped penny stocks? If there is one thing you need to remember, with the stock market, history will always repeat itself.
Just as the market turned in 2000, it will turn again. As one analyst noted, “Small-caps aren’t nearly as overvalued as tech stocks were when they finally crashed. Large-cap growth stocks aren’t nearly as cheap today either.” today than small cap stocks were in 2000.”
So what do you do as a penny stock investor? Are you putting most of your money into the cheaper end of the market and patiently waiting for the turn? Or, do you pile on whatever has worked lately and hope it continues?
It really is a tough call. Penny stocks are more volatile than their larger counterparts. And as we all know, penny stocks can defy all odds; go up when the market is down and down when the market is up.
Maybe you could just sit tight for the short term. Market watchers expect small-cap stocks to shine in January as investors weed out former winners and make way for more speculative issues.