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Penny Stocks: The Comeback Kid?

Penny stocks

The past few weeks have seen plenty of penny stocks being actively traded in Bursa Malaysia. Among the top performers is Harvest Court Industries Bhd whose stock has jumped 16 times from 8.5 sen to RM1.40 in just four short weeks.

Penny stock, as defined by Investopedia, is a stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. In Malaysia, penny stocks are quoted securities that are trading below the RM1 mark.

Local analysts and brokers attributed the rise of penny stocks to a sign of renewed confidence among retail investors. Recent gains on blue chip counters also contributed to the increasing interest in penny stocks. As blue chip stocks are becoming expensive, investors turn their focus on penny stocks. But the highly speculative nature of penny stocks has triggered a warning from the Securities Commission Malaysia for investors to make informed investment decisions and be cautious over the rising number of penny stocks whose prices have skyrocketed recently without material corporate developments.

Interest in penny stocks does not only occur in Malaysia. There is also a rapidly increasing interest in penny stocks in the US as reported by Peter Leeds in his recent article in Forbes, ‘The Rise of Penny Stocks‘. According to the article, search volume for “penny stocks” in January 2011 has doubled from 2008, while there was a tripling in searches for penny stock related news stories. As people are looking for ways to gain profit quickly, they resort to penny stock as good money can be made from these low-priced shares.

If you are ever tempted to invest in penny stocks, remember these sound advices by Peter Leeds: do keep in mind that they are not for everyone and never, ever, buy shares in a penny stock if they are from a free source. They are most probably tricking you to make profit for themselves.  Trade smart and be vigilant. Happy trading!

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