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Should you buy cheap stocks?

P V Subramanyam
Fin - Yahoo! Finance India - IN

The perennial search for quick money takes us through lot of unknown routes.

It takes a lot of hard work, luck, government lobbying, team building — to create companies like Tata Steel, HGFC, TCS, Infosys, Reliance, Honda Motors. It takes years, if not decades to create good companies too!

However a few people feel (and they are fed such nonsense by the ads) — pick up a penny stock (also called micro cap) — and it will double in a few months. One ad about which I had written about earlier gives you a game plan by which your US $ 200 becomes a few million — and how you do not need a Retirement Plan at all!

Only if life were so simple! Alas, it is not so. Not so at all!

Cheap stocks — by whatever name called are cheap because:


- NOBODY else is talking to those companies, analysts do not track it, responsible media does not know about them, their boards are unknown,….

-NOBODY IS interested in them! — these are companies which are so small that it does not excite big investors, mutual funds, life insurance companies, etc.

Leave such companies to the big people — let the Enams, JM, Dsp, Kotaks of the world invest in such companies.

If you do not know how to manage your money, being a Venture capitalist is not a great idea, what say?

The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. Writing being a passion he also regularly pens his thought in his blog