Have been away from the blog for a while now and it is all the fault of the footy finals. Evey August and September my attention turns from calculated gambling on the share market to gambling on the footy.....calculated of course.
So with that theme in mind I thought it pertinent to talk about small caps and speculative stocks. The average investors like you and me simply cannot resist the prospect of massive gains in a small time frame.We ignore the plentiful advice to avoid using anything other than excess disposable cash to gamble on this kind of investment, and that's what it is gambling.
Since Australia’s resources boom began it has been a major source for penny stock hunters. The companies in this sector are typically very small and are engaged solely in exploring for minerals. A single find or even something as little as a positive geological report can send the share price soaring in the expectation it could be the next big winner.
A great example came a few years ago in 2007 when Minemakers – a Perth based phosphate exploration mining company that was around twenty cents a share, hit pay dirt. What happened to drive the price to around $2.50 by the close of the first quarter of 2008 may be a matter of historical interest, what matters to investors is the 1400% increase.
These success stories are few and far between and there are better strategies than to score big with penny stocks. There is definitely a place for these shares in your portfolio but if you want to avoid getting burned you need to do your homework, perhaps even more so than with the shares of larger companies.
Before you buy make sure you look at all the factors you normally would with a big boy and even more so try and find out the reputation of those leading the business. These stocks could make big money, but only use cash you can afford to loose and have them as part of a balanced portfolio.
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