Stock Tip of the day: Penny Stocks

Penny stocks are just that: stocks that cost mere pennies.

Penny stocks have the benefit of becoming mega-profitable if you have a few bucks to burn right now and can be patient.

Pier 1Imports is an excellent example. In 2007 the company was on the verge of bankruptcy, about to close. Stocks were $0.07 apiece. Yes, kids that's 7 cents a share. Now, at that price and with the company's history, they very well could have sank and closed forever. They were hiring a new CEO and that action can take a company in either direction. From my end, its before having children. I know for a fact I could have purchased $7 worth of stock in Pier 1. Had the company tanked, I would have lost the price of a lunch out or a few coffee drinks. No big.

So, say I purchased 100 shares in Pier 1. Today, 2011, Pier 1's stock is worth almost $11/share. Doesn't sound like much of a stock price.

BUT WAIT! Today's shares are now worth 149 TIMES what they were in 2007. That means that the $7 I invested is now worth... $1043. That would keep me fueled up on coffee drinks all year, er, I mean, take care of a mortgage payment!

Investing in pennies depends on how much you can purchase and how much you can afford to lose, because there is a very real possibility of losing it all.

I do know I could have dropped $70 with a heated discussion from hubby... or I would have spent that on an outfit. But I'm sure Goodwill has that outfit now and hubby would be enjoying that extra vacation with me this year or at least the mortgage payments $10,430 would cover.

If you get really economicky, like some of the TV pundits adivse, you would do things like turn down your sister's bridesmaid request for something like this. I happen to have TWO sisters getting married this summer. Am easily spending $700 combined. I could really anger them by saying no to being a part of their nuptials. BUT, I could invest what I would be spending in penny stocks and split the $104,300 with them in a few years... yeah, maybe penny stocks aren't secure enough to risk a rift in familial relations on a $104,300 emotional bandaid (and truthfully if it panned out, I'm not sure that I would want to part with that) but you catch my drift.

It all depends on what you can afford to lose... there are people making millions off this, but they have the few hundred bucks to (probably) lose. Get a crisp $20 for your birthday? Think pennies...