The Opportunity of Low Volume Penny Stocks
Posted on | August 7, 2009 | No Comments
There is a reason that many established investors will warn you away from penny stocks. A penny stock is usually any stock trading under $1.00 Today’s market for VaxGen (VXGN), a company we have discussed in previous posts, is a perfect example. The stock price dropped at midday today more than 8% on volume of 5000 shares to .55. It did close a penny higher, but pay attention small time investors this investing tip is for you!
A Big investor (I am not talking in girth) looking at VaxGen would conclude that this stock has more risk than a stock trading in a higher volume. The more shares trading of a stock the more liquid that stock is. VXGN can, at times have limited liquidity. If you wanted to sell your whole position in this stock and you owned 100,000 shares, you might have difficult doing it. And if you could sell all your shares it would definitely drive the price down. This is a problem for the Warren Buffett’s of the world. Oh wait I guess there really is only one of him.
But what is a problem for Warren Buffett is an opportunity for the small time investor, or a beginning investor without a lot of start up capital. I bought 2500 shares on volume of 60,000. My order to buy which could have taken all day to fill on day like today, filled in minutes on Tuesday. This problem vanishes when the liquidity increases. This will often follow news, good or bad, or a price rise which can attract other investors. In fact it was Buffett who said if he had less than a million dollars he could make 50% on his money every year. That’s a hell of a return.
The important item to take away is that opportunities aboud. But you need to look in the right place at the right time. What is good for one investor is not good for all investors.
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