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Penny stocks: Should you invest? - YouTube

Channel: Groww

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hey guys welcome to another episode with

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me shashank and in today's episode i'm

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gonna talk to you about penny stocks now

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what's the agenda for this i'm gonna

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tell you what penny stocks are what are

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the key features of penny stocks what

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are the potential rewards of investing

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in penny stocks but more importantly

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what is the risk associated with

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investing in penny stocks and finally

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i'll conclude but before i go ahead with

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this video and you've seen a lot of good

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videos coming from our side i want you

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to click on the subscribe button if you

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haven't because we post a lot of quality

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[Music]

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what are penny stocks penny stocks are

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those stocks that have a low absolute

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price in u.s the security and exchange

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coming in commission sec specifies that

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the stocks of the share price of less

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than five dollars are known as penny

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stocks however in india there is no

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exact definition as such generally any

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stock which is quoted at less than 10

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rupees in india is considered a penny

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stock but let's look at some key

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features of a penny stocks how do you

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identify a penny stock one as i said is

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the low price investors often confuse

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price and valuation i'm talking about

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low price anything trading at less than

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10 rupees need not be a bargain people

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think 10 rupees i will buy and it'll

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become 100 rupees in the future that's

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not the case the underlying business may

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or may not be worth 10 rupees a share so

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remember there's a famous quote by the

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father of value investing benjamin

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graham price is what you pay value is

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what you get right so look at the value

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uh look at the price and see if both of

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them match only then figure out whether

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you need to buy or not another key

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characteristics right about penny stocks

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is low market capitalization penny

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stocks are tiny companies that have not

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yet proven themselves with their

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earnings potential their companies that

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still need to prove themselves and

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become big so sometimes a company that

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has doing pretty well in the past may

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also become a penny stock because the

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whole business would have changed

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drastically now another characteristics

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we've seen is illiquidity now

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institutions and large investors usually

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stay away from penny stocks even retail

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investors sometimes stay away from this

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so the average trading volume is very

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less and few people have large ownership

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of a market float now this becomes a

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problem also and penny stocks are very

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speculative right that speculative means

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i am assuming that it will go up the

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stocks are illiquid which offers a lot

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of concerns for huge investors and also

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speculation kicks in volatility of the

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price movement kicks into a lot of

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different problems about that but it's

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okay these are characteristics of a

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penny stocks but what are the potential

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rewards of investing in penny stocks and

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who goes there what can we do here it is

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very good for beginners right if you

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don't understand if you just want to

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know how to buy or sell penny stocks are

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very cheap 5 rupees 6 rupees 7 rupees so

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you can put a few rupees and then see

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how it works but again it's very liquid

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so i wouldn't suggest that so much uh

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it's not capital intensive as i said you

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don't have to spend thousand rupees you

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can start with 20 rupees or 50 rupees

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and actually try uh buying stocks and

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even with a few thousand rupees you can

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have 10 to 15 penny stocks in your

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portfolio also the advantage here is the

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potential of high resin so if it

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actually works out if there is some

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merit in the business and the business

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gonna do well and suddenly there's a

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turnaround the stock can give mad amount

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of returns right for example symphony

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and weber global were penny stocks in

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2019 have gone up by 100 times in these

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levels so you can always look at that

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from that perspective but again

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underlying business value is important

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now what are the risks associated we

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can't look at the good things we have to

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also look at the bad things the risk

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here is

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it is tiny unproven beaten down

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companies right they have not proved

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themselves the odds of this company

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doing well is already bad right you're

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playing against the odds and penny

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stocks are very very very low so low

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right with respect to market cap and

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price because nobody wants to buy them

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so it is possible turnaround will turn

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sometimes turnaround happens and it goes

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up but just be aware of how this entire

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system works right now another problem

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here is i don't know whether you've

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heard of this system called pump or dump

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right a lot of operators play this game

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because the stocks are illiquid it is

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very easy for anyone with a little bit

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of capital to come and corner the market

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uh with some lot of shares right if

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there's a stock that's not trading much

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if i come and put a one crore order i'll

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take so much so many amount of shares

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from the market because each share is

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trading at 910 rupees and then i can

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manipulate the entire thing showing an

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artificial pump and then all of you guys

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will buy and then i can dump the things

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so this is something that a lot of

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people do so don't get caught in this

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pump and dump scheme another thing is

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here is illiquidity now i said

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illiquidity is there but it's also

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double its sword right it can has it has

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its pros but it also has its cons

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sometimes if it can work for your

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advantage because if you pick the right

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business that means demand is more and

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there's no liquid stocks so the price

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will keep going up right on the flip

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side it can work against you if you

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choose the long wrong business why

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because if you're selling and nobody's

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buying then you will keep hitting lower

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circuits a lot and if it keeps hitting

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lower circuits a lot and there's no

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buyers you'll have a massive issue after

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that so that is also another issue now

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finally concluding this making money

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through penny stocks is definitely

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possible but you should definitely

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understand the risks that are involved

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in this right should i invest in penny

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stocks is a wrong question to ask a

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better question to ask is which stock

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should i invest to protect my capital

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and also earn a decent amount of return

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in the future now if it doesn't matter

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whether the stocks you invest in a penny

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stock or not look at the fundamentals of

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the stock and see if it has a future

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growth potential only if these two match

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then you can start investing in stocks

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okay great

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now this brings us to the end of this

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video and i told you a quick

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introduction about penny stocks if

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there's something that i didn't discuss

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or you didn't understand you have any

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questions about penny stocks put in the

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comments below and we'll be happy to

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cover them in your upcoming videos as

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well another thing i want to

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tell you guys is now we also have a new

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channel called grow plus where we post

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content around the career health

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investing entrepreneurship and much more

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so if you haven't subscribed to it the

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link is below in the description you can

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click on it and subscribe to it right

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again just to give you guys a disclaimer

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every all the stocks that i mentioned in

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this video are only for educational

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purposes it is not for buying and

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selling again this is me shisha good

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signing off

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investment in securities market are

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subject to market risks read all the

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