Why Cheap Stocks Fail
Here is why you lose money when you invest in cheap stocks:
Simply put, you get what you pay for. Its just like buying a cheap car; you can't get a new Corvette for the price of a beat up wagon. When a stock is cheap, it is cheap for a reason. You are not getting a discount. If the stock was a strong, high quality stock that is in demand, then don't you think everybody else would buy it and therefore increase its price? There are only a few unique situations in which a cheap stock is actually a discount, and that is after a bear market when everything has taken a big hit (but even still, just because the stock performed well in previous years does not mean it will do well again in the future) and when a well performing stock goes through a normal correction during base building stages. Think of building your portfolio as you would build a sports team: would you want to build a sports team full of the cheapest, lowest quality players you can find? Or would you want to build a sports team full of the more expensive, but high quality players capable of actually winning? The answer is obvious, right? I hope so. You aren't going to beat the market with cheap stocks, just like you aren't going to beat a Corvette with a wagon; invest wisely. I also have a very bad feeling that some of you found this page because you were looking for penny stocks. I don't even want to get started on how horrible penny stocks are, but for the sake of those who are looking for cheap stocks, read below...
Penny Stocks are Scams
If someone is telling you how great penny stocks are, then you are being scammed:
No decent investor would even consider "investing" in penny stocks, or any really cheap stocks. If you are an inexperienced investor who just let some random guy on the internet, who is posing as a millionaire penny stock investor, convince you that you can get rich in penny stocks then you are most likely being scammed. I know of ZERO legitimate penny stock strategies, unless of course you are the one running the penny stock scam. Think about it: penny stocks are SO cheap and so small that any decent amount of activity can have a huge impact on its price. So what do these scammers do? They buy a penny stock and then send out a newsletter to all of their unfortunate subscribers and tell them about how "hot" this penny stock is. Then all of the inexperienced and unfortunate investors begin purchasing that stock and drive its price up a little bit from all the buying. The scammer can then sell out and realize a profit of their own. This is known as "pump and dump." They pump up the price and then dump the stock for a personal profit while others lose money, because remember - in order for one person to make money, another has to lose it. Beware of penny stocks and trust nobody who advocates them. If someone is advocating penny stocks then I can guarantee you they are most likely not a serious, professional investor.
If you want to learn real strategies to make money in the stock market, then look at the links and books to your left. You are welcome. ;)