Every DIY investor at some point wants to make a big game and win big. Unless you have a ton of cash to invest, Shopify is typically out of the question, but penny stocks are becoming attractive to some.
Investing in penny stocks, however, is not the same as investing in large blue chip stocks. It is a risky investment strategy and access to company and financial data can be limited.
Before you dive into buying Canadian penny stocks, you can get solid results with a solid investment strategy (see below).
Let’s go over a few Frequently asked questions about penny stocks to understand that such investments are risky. While it could make you money, it’s not a portfolio strategy, it’s a play money approach where you are ready to lose it all.
What is a penny stick in Canada?
A penny stock generally refers to a small company’s stock and trades below $ 5 per share.
The so-called penny stocks are usually not traded on a major exchange. If you can find any, they either have had recent stock price issues and may be removed from the market, or they still maintain high trading volumes and are not small-cap companies.
Penny stocks are usually traded on the OTC (over-the-counter) market or on pink sheets. Because Penny Stock stocks are often limited in availability, buying and selling them is not always easy.
Don’t confuse a Canadian small-cap stock on the TSX with a Canadian penny stock.
Take New Gold Inc (TSE: NGD), a gold stock that is traded on the TSX and is priced at $ 2.10. Seems cheap enough to be a Canadian penny stock, but has a market cap of $ 1.42 billion and a daily volume of 1,955,617. This is not a penny stick. Such is the case with a company whose share price has dropped from $ 14 per share in 2012 to $ 2 per share in 2021.
Can Penny Stocks Make You Rich?
Well, it can just be like playing the lottery. Canadian penny stocks are inherently risky investments as they are typically not traded on a major exchange and do not need to meet the exchange’s larger financial requirements. In short, the financial bar is lower.
The strategy is to understand where the company can go and whether it can bounce back or take off.
If you find one of these and the price is 20x, then you make money, but it always depends on how much you’ve invested. I would say that getting rich in penny stocks is the same as looking for gold.
Much time and energy could be put into a more careful investment strategy like dividend growth investments.
A good annual return will work the magic over time by simply investing in solid blue chip stocks.
What Are Good Canadian Penny Stocks?
Penny stocks tend to trade on news and momentum. If you hear of a good one today, your start-up is probably done.
To find a good Canadian penny stock, you need to go through each of them with a screener and pick the deal that you can possibly understand.
You can start with the TSX VentureExchange (TSXV) and search for the stocks you are looking for. Technically, the bigger the volume, the greater the interest of some investors, and that implies more volatility and speculation as well.
For example, some of the new stocks are cryptocurrency and blockchain companies.
Which account should I hold Penny Stocks?
We can never avoid talking about income taxes. While investing in penny stocks is risky, and while the rewards could be good, position yourself to write off the loss of capital.
To write off losses, you must invest your Canadian penny stocks in your unregistered account.