Why Investing in Penny Stocks Or Low Single Digit Stocks Of A Larger More Diversfied Company Is Usually A Safer Bet'

Now I talked a little about this in a different post. The real problem with a lot of very small companies trading below 5 dollars or under 1 dollar is simply the fact that  a lack of diverscation is a real problem. We could be talking about a single product that will make or break the company based on its performance. Or we could be talking about a company that gets most of their business from one customer say walmart is the largest customer for a company that makes a soda product maybe 50% of their annual sales are to walmart. thats a high risk to the company if for some reason walmart decides to not buy their product anymore. Larger more diverse companies are less likely to be so heavily dependent on a single customer for their product or service  By favoring somewhat larger more diverse companies the risk is going to be lowered  because their success or lack of success might not depend so heavily on the whims of a walmart purchasing manager.

Finding larger companies trading below 5 dollars or below 1 dollar will require more effort because most sub 5 dollar stocks and sub 1 dollar stocks tend to be very small companies. Its worth the extra effort  because the risk level is generally  lower for companies that are larger in size. We are talking about companies doing maybe around 100 million dollars in annual sales or more. You are more likely to find low single digit stocks and penny stocks trading on the new york stock exchange and the nasdaq that do over 100 million dollars in annual sales  than on the over the counter bulletin board or the  pink sheets.



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