Why It"s Rare to See Penny Stocks Become Mid Cap Stocks
Investing in penny stocks is often considered to be a lucrative option as they can develop into big stocks, bringing massive wealth with them.
However, it is rare that a penny stock will develop into a mid cap stock.
The high risk involved in trading these stocks and their susceptibility to scams scripted by manipulative brokers often keeps seasoned investors away from them.
This alone could be part of the reason why they rarely become mid cap stocks.
Many believe that the capitalization of a company has nothing to with the price of its stocks.
But there have been instances when many of these micro-cap stocks grew up to become small cap or mid cap stocks.
However, these examples are so few they could be virtually counted on the fingers of one hand.
It takes intelligent investors and a lot of effort on the part of the management and the brokers to enable a stock to grow.
Trading micro-cap stocks can often be an expensive proposition, so investors will typically limit what they invest in these stocks.
The high amount of volatility and risk involved prevents them from doing any more than this.
On the other hand, the mid-caps are considered as the most reliable way of generating long term wealth.
Mid cap stocks have lesser operational risk than the small cap stocks and are barely affected by changing market trends.
This is not the case with penny stocks.
There have been several instances when lucrative looking small cap stocks proved to be nothing but scams.
These stocks were de-listed and the investors faced large losses as a result.
According to experts, trading in small cap stocks is far riskier than trading in blue-chip, mid-cap or large companies.
With penny stocks you have a reduced chance of making money and more than a 90% chance of losing money.
Their performance is more investor-based, while that of big companies is based on fundamentals.
Penny shares are traded on the pink sheets and many of them are not scrutinized by the SEC.
Apart from this, the lack of liquidity and their high volatility has made these stocks vulnerable to scams.
Brokers take pains to show that certain worthless stocks are doing well.
They often make transactions into their own overseas accounts to dupe investors.
Most penny stocks are known to have lost their entire value - spelling large losses for the shareholders.
However, it is rare that a penny stock will develop into a mid cap stock.
The high risk involved in trading these stocks and their susceptibility to scams scripted by manipulative brokers often keeps seasoned investors away from them.
This alone could be part of the reason why they rarely become mid cap stocks.
Many believe that the capitalization of a company has nothing to with the price of its stocks.
But there have been instances when many of these micro-cap stocks grew up to become small cap or mid cap stocks.
However, these examples are so few they could be virtually counted on the fingers of one hand.
It takes intelligent investors and a lot of effort on the part of the management and the brokers to enable a stock to grow.
Trading micro-cap stocks can often be an expensive proposition, so investors will typically limit what they invest in these stocks.
The high amount of volatility and risk involved prevents them from doing any more than this.
On the other hand, the mid-caps are considered as the most reliable way of generating long term wealth.
Mid cap stocks have lesser operational risk than the small cap stocks and are barely affected by changing market trends.
This is not the case with penny stocks.
There have been several instances when lucrative looking small cap stocks proved to be nothing but scams.
These stocks were de-listed and the investors faced large losses as a result.
According to experts, trading in small cap stocks is far riskier than trading in blue-chip, mid-cap or large companies.
With penny stocks you have a reduced chance of making money and more than a 90% chance of losing money.
Their performance is more investor-based, while that of big companies is based on fundamentals.
Penny shares are traded on the pink sheets and many of them are not scrutinized by the SEC.
Apart from this, the lack of liquidity and their high volatility has made these stocks vulnerable to scams.
Brokers take pains to show that certain worthless stocks are doing well.
They often make transactions into their own overseas accounts to dupe investors.
Most penny stocks are known to have lost their entire value - spelling large losses for the shareholders.