Wall St. Penny Stock ? Penny stock investing?is this a good idea ...

Question by Aaron W: Penny stock investing?is this a good idea?
First, a quick background. I?m a college student and my knowledge of investing in stocks is limited to the few economics and finance courses I have taken. Anyway, I have about $ 7,000 just sitting in a savings account which I have been accumulating since I was a teenager (I practically save all my money). I have no need for that much liquidity (my parents pay my tuition and for my car and tell me not to get a job while in college because it?ll mess with my academic performance) and wanted to see if the following is a feasible idea, or if I?m just a moron.

I follow a lot of different stocks, some obscure ones. But anyway what if I were to, for example on a whim, buy about 100,000 shares of green gold ray energies stock (GRYE) for $ 0.05 a share for $ 5,000 total. Hold onto it for a year and some change to avoid the short term capital gains tax, and sell all my shares at some point in the future when the stock price is significantly higher, say $ 0.50 or more.

I know the point of investing is to diversify, ?stay in it for the long run?, etc? But would this be a decent idea? Keep in mind, I have no need for all $ 7,000 of my money at this point in time, and probably won?t until I graduate in about 2 years. I suppose I could start saving for retirement now, or do many more intelligent things with my money?but I just want to know if this would work!

Best answer:

Answer by Ninja grape juice
I would not do that.

Let?s pretend that the stock has a 50/50 chance of going up or going down on a given day.

If it goes up by one cent, you will make 100 000 cents or 1000 dollars. If it goes down, you will lose 1000 dollars. That is 20% of your total investment, which makes this a hypervolitile stock. You will either win big or lose big if the stock makes the smallest possible move.

Lets look at another problem. Stocks that sell for 5 cents a share are priced that low because there is something drastically wrong with them. Expecting a 5 cent stock to increase in value to 50 cents is extremely unrealistic.

A third problem is that the stock is also quite likely to tank and be worth 0.00 dollars, or do a reverse split meaning that you will have 1000 shares worth 10 cents each, leaving you with 100 dollars on your 5000 dollar investment.

You would be better off buying a blue chip company that you are sure will not tank in the coming months, and that can produce dividends. If you want a small company with growth potential, it is absolutely the wrong time to buy.

What do you think? Answer below!

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