Penny Shares

Any particular reason why you have chosen penny shares?


not really, main reason is because i've never done anything like this before so penny shares seem like a good place to start because they don't involve too much money
 
not really, main reason is because i've never done anything like this before so penny shares seem like a good place to start because they don't involve too much money

When you say that you have never done anything like this before are you referring to trading Penny Shares or Trading in general?

If its the latter, then I would SERIOUSLY suggest you leave Penny Shares alone and instead concentrate on less volatile stocks such as those in the FTSE100 / 250.

The initial assumption by many newbies (including myself once when I began trading) is that trading Penny Shares will cost you less money with less risk associated as the price of the stocks is so low. In reality this is far from the truth!!! One of the key reasons for this is lack of liquidity. Trying to become consistantly profitable trading these type of stocks is a VERY difficult game and as such are best avoided !!


All IMO,

Chorlton
 
not really, main reason is because i've never done anything like this before so penny shares seem like a good place to start because they don't involve too much money
For £100 you could buy a thousand penny shares or 20 "normal" shares. They will still cost you £100.

Chorlton's advice is excellent. A penny share will have to do very well to recover the losses you incur in dealing expenses, slippage due to lack of liquidity, and poor bid-offer spreads.
 
not really, main reason is because i've never done anything like this before so penny shares seem like a good place to start because they don't involve too much money

*Chokes on my coffee*

With penny shares you are investing in companies that do not make a profit, probably have huge debts and are clinging to within an inch of life. This is why they cost pennies.

Generally they can be very illiquid - selling them will be a lot harder than buying them and the spread of such shares can be up to 75% of the value. Also the dealing costs are higher than say FTSE 100 shares.

You are effectively gambling that the company recovers or makes a breakthrough. Perhaps 1 in 100 will and you'll make huge profits on it - but the rest will fade into oblivion.
 
I think you need to define what a penny share is? I think I read somewhere that broadly speaking a penny share is anything under a pound. By this criteria there are some very big companies (FTSE350), fall into this category.
And who would argue that some of these are less risky than some tiddlers- would you be buying (as an investor) into B&B, Taylor Woodrow, Barratt Devs- right now?

Personally speaking I would define a Penny share as being something that does not have a full market listing (AIM or PLUS markets for example) with a CAP of probably less than £50 million. I would say personally that you need to do your homework and understand you might lose all your money when considering Penny stocks. You need to be prepared to be very patient and not have a need for the money- there are big gains to be made on the good ones but you will lose all or most of your money on the losers. I know I have done both.
As regards websites I personally use t1ps.com, I don't buy most of the tips that come along to be honest, I use it as a starting point for my own research most times (and I like reading Evil Kinevals diary!), on odd occassions its backed up my own when its tipped something after I bought- EMED for example- which is very nice! Tom Winnifrith has had some nice winners like Ascent resources, Kenmare Resources , EMED to name a few but equally there have been some total dogs- Speymill, My Home a couple i could mention. Your unlikely to be able to or want to follow them all. If you do- buy into his OEIC - a nice way to get exposure in an ISA to AIM stocks IMO.

Again like anything you read take it all with a pinch of salt- whether it be in a bulletin board, newspaper, magazine or website- or especially if someone tells you about it!

The biggest thing to consider though when thinking of buying penny shares is how much to invest. Now on one hand you might think because you have £300 you want to buy shares with that somehow buying a penny share gets you more, the reality is as peto stated above , £300 gets you £300 worth of shares whether it buys 5 RIO Tinto Shares or 15000 Sirius Exploration shares. The difference is that the spread (in percentage terms on Rio) will be fractional (maybe 20 p or something like that which is a fraction of a percent) against 10% or more on Sirius. Then adding dealing costs say £10 a trade each way and stamp duty and you need to make back £26 to cover costs plus another £30 in the spread to break even. So the penny share has to climb 20% just to break even, that's quite a big ask in current markets and your not going to get your money back quickly in most cases. A lot of small caps need to keep going round getting funding, if the share price hasn't moved up over time these funding rounds invariably dilute your holding making it worth less. On the other hand a share like Sirius jumped 115% in a morning- if you were in it at the time you would be laughing.
I personally would not say don't buy penny shares as long as you understand the risks- if things go wrong you will find you cannot exit quickly- you can try to sell but you might need to watch the price plummet while you wait on your order being executed. (been there done that got the T shirt).

You could as an option take a spread bet on any small caps you fancy if you can find a SB co that list them- IG are pretty good in this regard. You could take an unleveraged position (ie equivalent to what you could have afforded to buy but commitiing to the risk of the loss only) the upside to this is you can save on things like stamp duty and to an extent dealing costs- you need to work out the spread- you won't pay tax on the returns when you tiddler jumps to become a giant overnight, and if you are feeling less risk averse use your £300 (or whatever to take a slightly bigger position than you could otherwise afford with a sensible or guaranteed stoploss). I would only suggest doing this where you have fairly near term prospects for the share moving up- say a 3-6 month view. Hope this helps.... just realised its my first post too!
 
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