The Toronto Stock Exchange (TSX) is the largest stock market platform in Canada, and it has a diversified set of listed shares. Penny stocks are available on both the TSX and its sister exchange TSX Venture Exchange (TSXV). These stocks are among the small units available for trade in the markets and typically have low market capitalization and priced under C$5.
Trading in TSX penny stocks is not a child's play; it needs strong-appetite investors who can bear the blows of big losses. These stocks are risky and volatile. Often, aggressive investors targeting low-value stocks for multi-baggers bet big on penny stocks. But there is a catch. Most penny stocks fail due to uncertainty, poor management, and sometimes speculative insider trading activities.
Investing in penny stocks is a bit like the latest frenzied trading in meme-stocks or cryptocurrency tokens. Investing in these when they are at the threshold of a growth trajectory can return good gains. However, one can also end up with nothing. Investors try to bet on the upcoming top performers based on speculations.
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These microcap stocks with lucrative price surges and potential return on investment mostly attract newbie investors. However, handful of Canadian penny stocks also deliver dividends to their stockholders monthly or quarterly, apart from impressive return on equity.
Investment in TSX Penny Stocks
Making money in TSX penny stocks may lead to the erosion of all investment capital. But if one decides to enter these speculative investing options, take a cue from the following robust decision-making hacks:
Begin investing in the risky penny stocks with excess money that you afford to lose. Eventually, these TSX-listed penny stocks should be the tiniest fraction of your portfolio.
Distribute your investment in penny stocks across multiple sectors to reduce the risk factors. While recommending diversified penny stocks portfolio, analysts advise allocating funds using the market segmentation method. Some popular segments include biopharma, technology, software, entertainment, and other evolving divisions.
The official site of Canadian equity exchanges such as TSX and TSXV offer solid fundamental analysis of stocks. Referring to the data before making a buy call can be useful. There are many quality penny stocks, but investors need in-depth research to identify them. Bay Street analysts mostly look for relatively healthy balance sheets with payable outstanding debt. They also dig into their source of financing or funding.
TSX Penny Stock Segmentation
Small and medium enterprises or entrepreneurial ventures are most likely to get listed as penny stocks on the TSX or TSXV, with the latter hosting most of these stocks.
Investing in them is often equated to casinos or speculative plays. The outcome is either win-or-bust, which depends on the companies' on-ground operations and overall market sentiments.
For example, many internet and tech-related firms' penny stocks rallied just before the dot-com bubble in the late 1990s. Unfortunately, the gaining spree ended miserably, and most of them collapsed to nothing.
Pooling all your hard-earned investment fund into penny stocks is not sensible. But traders still manage to take advantage of the range of market segments and by exiting on time. They invest money in budding tech companies, booming commodities, growing biotech firms, and so on. Upcoming investors should not blindly pick these stocks as they can tumble just as promptly as they can soar.
Holdings of Company Executives in Penny Stocks?
A media-friendly chief executive officer (CEO) commenting on its operations and prospects helps investors understand its potential. But penny stocks mostly trade based on speculations, rumors, and the new meme-based frenzy buying.
However, sound management can transform a small or sinking company into a profitable venture. We have witnessed many penny stocks graduate to the TSX's small-cap and mid-cap categories. These startups or ventures founders or co-founders take support from capital venture firms, propelling new heights. Skilled and ethical executives with a majority stakeholding in the company can attract more investors.
Generally, such strong management leading penny stock firms is a rare find.
But there are some exceptional cases. For example, Hut 8 Mining (TSX:HUT), a FinTech company, got promoted to the TSX small-cap category in the first quarter of 2021. It was earlier a penny stock trading on the TSXV.
Jaime Leverton, CEO, Hut 8 Mining, leads the company's diversified management. The CEO is quite active on her social media handle and interacts with the company's investors, helping the company grow by multiple folds.
After dropping to less than a penny per share due to the COVID-19 pandemic, Hut 8 stocks rebounded five times against its pandemic slump. This extraordinary revival is due to many catalysts, including the recent crypto rally. But among several reasons, solid and approachable management is one.
Short-Term Trading in Penny Stocks
Experienced investors play safe when trading in speculative penny stocks, withdrawing half of their holdings once they double their earnings. That is a viable approach for any high-risk in penny stocks.
Setting up smaller targets helps investors avoid significant losses and provides a clearer picture of managing their investment.
Ultimately, if one is sluggish to act on speculative profits, it can dent the overall earnings and erode the principal investment fund within a day. Hence, setting sell triggers is also an essential aspect of trading in penny stocks.
A Word of Caution
Penny stocks are very risky and volatile by nature. They are also vulnerable to manipulation and scam. But investors take dicey decisions to earn huge returns in a short period. However, many penny stock firms go bankrupt, and their overall value plunges to zero. If an investor is still ready to invest in penny stocks, the person should go through fundamental analysis of penny stock and look up the company's management and future plans.