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Comparing Blue Chip and Penny Stocks I
One cannot truly understand penny stocks by merely defining them. Penny stocks can be better understood by comparing them with the big or blue chip stocks. To help you learn and understand more of penny stocks I will discuss the differences of penny stocks and blue chip stocks and in the process derive the reasons why penny stocks, though risky, can be a good investment.
One of probably the most significant differences between penny stocks and blue chip equities is that penny stocks, since they are often from obscure, small, or just starting corporations, allow the investor to speculate on how penny stock prices will move in the future as compared to the blue chip stocks where investors have small or no room for speculation as stock price movement have been so stable and predictable over the years. Because penny stocks have little publicly accessible information about the corporation as well as negligible revenues, not to mention unknown product performance, investors have room to speculate on stock performance. Furthermore, compared to blue chip stocks that have a mere ten percent to twenty percent return annually, penny stocks, once they boom, give a return of hundreds even thousands of percentages from your original investment.
Related to speculation is the value and predictability of penny stocks. Unlike big stocks that have predictable profits and revenues and are more open with their corporation's information, penny stocks do not have much available information to base an analysis of future stock price behavior. This is why analysts have more opportunity to accurately depict the status of a blue chip equity than a penny stock. The true worth of a blue chip stock can also be easily accessed giving the investor the idea of whether a stock is overvalued or undervalued. The true worth of a penny stock, on the other, cannot be 100% ascertained as penny stock prices are determined more by speculation and demand rather than by accurate analysis. To be honest, penny stocks have very little actual value but its potential for growth can be speculated. As compared to blue chip stocks that have an accurate actual value but very little chance for great leaps in stock prices.
Also related to speculation, predictability and value, the available information given to the public also differs in penny stocks and big stocks. The blue chip corporations are mandated to follow reporting requirements to be able to trade and maintain their status in the major stock exchanges. Other than these, big corporations want to make the shareholders happy by often bending over backwards to show the detailed corporate decisions and actions. This is strikingly different from penny stocks where disclosure is minimal if existing at all as they are not required to report or give much detail of the corporate actions. There are very few penny corporations that inform the public of their inner workings and decisions. Because of the minimal disclosure of penny stock information, fundamental analysis of the penny stocks for stock buying and selling can prove to be difficult as compared to fundamental analysis that can be easily conducted in any of the blue chip stocks.
One of probably the most significant differences between penny stocks and blue chip equities is that penny stocks, since they are often from obscure, small, or just starting corporations, allow the investor to speculate on how penny stock prices will move in the future as compared to the blue chip stocks where investors have small or no room for speculation as stock price movement have been so stable and predictable over the years. Because penny stocks have little publicly accessible information about the corporation as well as negligible revenues, not to mention unknown product performance, investors have room to speculate on stock performance. Furthermore, compared to blue chip stocks that have a mere ten percent to twenty percent return annually, penny stocks, once they boom, give a return of hundreds even thousands of percentages from your original investment.
Related to speculation is the value and predictability of penny stocks. Unlike big stocks that have predictable profits and revenues and are more open with their corporation's information, penny stocks do not have much available information to base an analysis of future stock price behavior. This is why analysts have more opportunity to accurately depict the status of a blue chip equity than a penny stock. The true worth of a blue chip stock can also be easily accessed giving the investor the idea of whether a stock is overvalued or undervalued. The true worth of a penny stock, on the other, cannot be 100% ascertained as penny stock prices are determined more by speculation and demand rather than by accurate analysis. To be honest, penny stocks have very little actual value but its potential for growth can be speculated. As compared to blue chip stocks that have an accurate actual value but very little chance for great leaps in stock prices.
Also related to speculation, predictability and value, the available information given to the public also differs in penny stocks and big stocks. The blue chip corporations are mandated to follow reporting requirements to be able to trade and maintain their status in the major stock exchanges. Other than these, big corporations want to make the shareholders happy by often bending over backwards to show the detailed corporate decisions and actions. This is strikingly different from penny stocks where disclosure is minimal if existing at all as they are not required to report or give much detail of the corporate actions. There are very few penny corporations that inform the public of their inner workings and decisions. Because of the minimal disclosure of penny stock information, fundamental analysis of the penny stocks for stock buying and selling can prove to be difficult as compared to fundamental analysis that can be easily conducted in any of the blue chip stocks.
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