Should You Have A Portfolio Of Penny Stocks?

| August 30, 2011 | 0 Comments

Opportunity AheadWhen I think about buying hot penny stocks, I always think of the Lay’s potato chip advertising campaign.  You know what I’m talking about… their famous slogan, “Betcha can’t eat just one!”

In a sense, penny stocks are like potato chips.

You can’t ever just have one.

As a matter of fact, if you look at some of the most successful penny stock investors around, they don’t just load up on one company.  Nope.  They take their investment portfolio and spread it out over a number of small penny stocks.

Take for example this penny stock mutual fund I found.

The Royce Value Plus Mutual Fund (RYVPX) is focused on investing “…in equities securities of small-, mid-, and micro-cap companies.”  The man tasked with running this fund is Chip Skinner III.  And he’s been at the helm of a mutual fund, or in the securities industry, since 1994.

His objective is straightforward… make money for investors.

Fortunately, Chip delivered.  According to Kiplinger, his fund is the top performing penny stock mutual fund in the industry.  It’s returned an average of 12.3% over 10 years.  That’s not a bad return.

So how many stocks does “Chip the third” stash away in his top performing fund?

An amazing 137!

Now keep in mind, Chip is a professional.  His day job is to identify, research, buy, and monitor these stocks.  He also has a staff of assistant managers and analysts doing the dirty work.  That’s why he can get away with holding so many penny stocks.

What about you?  How many penny stocks should you own?

That all comes down to the most precious commodity we have… time.

If you have hours and hours every day to monitor and research the markets and individual companies, then you could probably get away with owning north of 100 penny stocks.

However, if you have a day job, a family, and outside commitments, monitoring even 50 companies could be daunting.  What I recommend is simple.  Take whatever amount of your investment portfolio you’re focusing on penny stocks and divide it into 20 pieces.

That means about 5% of your penny stock capital is targeted for investment into great little companies.

Why 20?

Twenty is a number that gives you good diversification.  Yet it’s a small enough chunk that if one of these trades doesn’t work out, you’re not totally wiped out.

Twenty stocks is also a large number of companies to actively follow and track.  Some will put out more information than others… but this should give you enough time to do your research, read up on the companies, and quickly monitor your portfolio throughout the day.

Remember, there’s no sure thing in penny stock investing, so spread your risk around and build a portfolio of good little companies.  Like I said… penny stocks are like potato chips – you can’t ever just have one!

Until next time,

Brian Walker

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Category: Investing in Penny Stocks, Penny Stock Tips

About the Author ()

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.