Are Penny Stocks Worth It? I think the performance of microcaps speaks for itself …
Last year, Microcaps performed far more impressively than any big name stocks. This creates opportunities for traders.
Since April 2021, for the past 20+ years, I’ve made profits of over $ 7 million * trading penny stocks – also known as microcap stocks – due to their small market capitalization.
One of my main goals as a teacher is to educate my Trading Challenge students about how penny stocks really work. I want them to learn how to potentially take advantage of the insane price spikes they can experience.
It’s not just about charging random cheap stocks. It’s about having the right mindset – and having a strategy. I want traders to understand about microcaps performance:
(* These results are not typical. Individual results will vary. Most traders lose money. I have had the benefit of years of hard work and dedication. Trading is inherently risky. Always do your due diligence and never risk again, than you can afford to lose.)
How microcap performance dominates “real” stocks
Here’s a great example of how microcap performance has dominated the market over the past year.
In case anyone ever says that penny stocks / microcap stocks are not doing well, show them this 1 year performance graph of how these major indices compare … MICROCAPS HAVE DOMINATED $ QQQ $ SPY $ IWM BY FAR! Please retweet / favor this with your followers so EVERYONE can see the truth! pic.twitter.com/LKmAqBgt7k
– Timothy Sykes (@timothysykes) March 23, 2021
Check out the table in this blog post …
This lists the annual earnings for ETFs that represent different segments of the stock market. It shows microcap performance compared to small-cap stocks and large-cap stocks on the Nasdaq and S&P 500.
The data is pretty convincing:
- Microcaps + 155.7%
- Small Caps + 121.5%
- Nasdaq 100 + 89.31%
- S&P 500 + 74.64%
Not sure what it all means? Let’s sum it up …
Breakdown of Microcap Performance
These data provide some important insights.
First, it shows what an extraordinary year it was on the stock market. These are some impressive results across the board.
But second and foremost … The performance of microcaps dominates the market.
Both the Invesco QQQ Trust and the SPDR S & P 500 ETF track the top Nasdaq and S & P 500 companies.
These include well-known companies such as Amazon.com, Inc. (NASDAQ: AMZN) and Netflix Inc. (NASDAQ: NFLX).
On the other hand, the iShares Micro-Cap ETF and the iShares Russell 2000 ETF track the performance of small caps and microcaps.
Overall, this data shows that the performance of micro-caps is twice as high as that of large or mega-caps.
The problem with large-cap stocks …
In 2020, the average return on the S&P 500 index was 18.4%.
Do not get me wrong. This type of return is great for larger stocks.
But I am not patient. About a 20% return might be good to save up for retirement … But you won’t be building a small account quickly.
The microcap’s performance offers much more short-term potential. Why doesn’t everyone trade in microcaps? Because they don’t understand this crucial thing …
Set the record directly on the performance of the microcap
Penny stocks may not make sense for those new to the stock market. It’s understandable.
Big investors mostly ignore penny stocks. When they are mentioned on the news, it is usually in stories about how sketchy and dangerous they are.
This is part of the reason I teach … I want to cut through the BS. I want to set the record on penny stocks.
I also want people to understand the risks involved with impressive microcap performance.
Despite the amazing potential of penny stocks, I don’t trust these companies as far as I can toss them.
I know – that might sound crazy and not intuitive. There are so many lessons in the stock market. Let’s make some sense of this …
Optimal microcap performance
The “traditional” approach to the stock market is to find companies you believe in and invest in them.
This approach doesn’t really work for microcap companies. The thing is, most of them are going to fail at some point.
That sounds scary at first. Why would you ever put money into a business that is going to fail?
Penny stocks are not investment vehicles
Before penny stocks fail at some point, they can potentially experience enormous price spikes in a short period of time.
Think of a big company like Apple Inc. (NASDAQ: AAPL) … It’s like a big freighter stuck in the Suez Canal. It takes a lot to get it moving.
A penny stick, on the other hand, is like a speedboat. It doesn’t take much to get the engine running. The most dubious press releases can lead to enormous price spikes.
When the conditions are right, I try to ride the wave of these types of moves.
I do not invest in these companies. I’m just trying to take advantage of these short-lived price spikes. My trades are very short term. Sometimes minutes, sometimes hours. Rarely overnight.
Change your perspective
One of the biggest barriers to trading penny stocks is not the actual trading process. It’s shifting into a new way of thinking about stocks.
That doesn’t invest. It’s not about believing in these companies.
I don’t believe in these companies.
When I discuss my trades in my Trading Challenge chat room, on my DVDs, or in my Profit.ly comment, you may find that I rarely mention the names of the companies.
I don’t care what the company names are or what they do – other than knowing that they are in a hot sector. But beyond that, they are all just tickers and potential vehicles for my strategy.
I love hot sectors !!
– Timothy Sykes (@timothysykes) February 13, 2021
History repeats itself …
History never exactly repeats itself. But it’s usually pretty close …
The current market situation reminds me a lot of the stock market in 2000.
At the time, I had no idea how extraordinary the market conditions were. Microcap’s performance was incredible back then … Then I made my first million. *
However, the high potential reward always carries a high level of risk.
Do yourself a favor – study the past to prepare for what the future may bring.
I talk a lot about 2000 market conditions in my autobiography, An American Hedge Fund. Check this out to get a better understanding of the risks associated with penny stocks in market conditions like we have them now.
Powerful microcap performance: be prepared!
Microcaps performance is hotter than ever in 2021. How can retailers benefit from this?
Remember: there are no guarantees in the stock market. Even with the hottest market and potentially largest bubble in decades, there is still a possibility to lose.
Trade is a battlefield. By continuing to educate yourself, you are doing what you can to prepare for battle.
Understanding how penny stocks behave and the attitudes that play out over and over again will give you a better understanding of the mechanics of the market. It can help you react from a place of knowledge rather than trying to anticipate.
Are you ready to expand your knowledge? Apply for my trading challenge.
Do you understand the risks and rewards associated with this type of microcap performance? Leave a comment… I love to hear what you have to say!