One of the most famous types of stock investments is Penny Stocks, these micro stocks that have the potential to make a huge profit. Penny Stocks have been featured in motion pictures, in books, and you can even subscribe to monthly magazines that will give you a so-called insiders edge. But where does the worlds best investor stand on Penny Stocks? Warren Buffett has avidly said over and over again that if you do not plan to hold onto a stock for at least ten years then you might as well not hold it for ten seconds.
In a recent interview, Warren Buffett did have some advice for those investors who want to dabble in Penny Stocks. First off Warren says that the number one rule for investing is to not lose money, with the second rule being that you must follow rule number one. Penny stocks are an extremely high risk, and thus you must be vigilant when you invest in these types of stock because they can violently fluctuate overnight. The risk of loss with a Penny stock is huge, thus you want to make sure that you thoroughly research the companies that you invest in. Many Penny Stocks are unknown companies and they are traded on the Pink Sheets which are not regulated.
Therefore the company can disappear overnight and the stock can plummet. Warren also says to limit what you borrow, especially when it comes to Penny Stocks because there is such a high risk of loss. The more you bet the more you will potentially lose, especially because Penny Stocks have not proven themselves and are generally brand new companies that do not have a lot of backing behind them. Needless to say, you won’t find Warren Buffett investing in Penny Stocks anytime soon, but if you heed this advice you will be able to limit your losses.