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The L and I in IBD’s CAN SLIM seven-point strategy for buying great stocks stand for “Leader” and “Institutional Sponsorship.”
They truly go hand in hand.
If you’re new to growth-stock investing, it’s perfectly normal to believe you should buy a laggard, not a leader. Your brain might insist that cheap, low-priced stocks have the biggest potential for gains.
Penny Stocks are stocks traded for under $2 and they represent the small cap companies. They trade on the OTCBB so you will not find them on the major stock exchanges. They are very cheap stocks and normally come for businesses needing capital. They are a very risky investment as the business can go under and leave you with a stock worth nothing. However that being said penny stock trading can be a great money maker, and there are numerous traders who make 6 figures and more from them each year.
The best reasons to trade in penny stocks are the fact that they do not require a large initial investment, meaning that they are an affordable investment for many. Penny stocks are cheap. For example if you were to buy 1000 shares in a company with shares at 10 cents, you would only require an investment of $100, whereas if the shares cost $5 you would require an investment of $5000. Penny stocks also have the potential of huge gains, and have been known to rise as much as 1000% daily. Therefore your $100 investment can be worth $1000. This is very unlikely to happen to other stocks from large cap businesses.
Some penny stocks do make a big profit. But they are rare. They’re cheap because their companies are inferior in many aspects, from products to earnings power to quality of executive management.