From Penny Stocks to Powerhouses
I remember when I first dipped my toes into the vast ocean of investing, fueled by an ambition to identify the next big thing back in 2013.
The tech giants like Apple and Facebook were already towering over the market. To me, it seemed like they had reached their peak, their growth potential seemingly exhausted.
How much bigger could they possibly get? I was convinced that my best bet was to scout for underdogs - the lesser-known companies that were yet to explode onto the scene.
In my mind, these were the stocks that promised exponential growth, mirroring the fairy-tale rise of Apple and Amazon. This was my opportunity to be a part of their journey right from the beginning. So, I embarked on a quest to find the next giant, starting my investment journey with penny stocks.
Penny stocks are small stocks generally traded for less than $5 per share. They seemed perfect for a new investor like me - low risk, high reward. Or so I thought… The idea of buying shares in a company for a few cents, then watching them multiply in value was intoxicating. It was like a shot at winning the lottery, and I was drawn to the potential.
However, reality proved to be a harsh teacher. Those penny stocks, instead of multiplying, went under, taking my investments with them. The companies behind these stocks went bankrupt, and I was left with a portfolio full of losses.
Meanwhile, the giants I had overlooked continued to grow. Apple and Facebook, in the years following my decision to invest in penny stocks, expanded their value by threefold. The so-called 'peak' I had assumed they had reached was only a stepping-stone in their steady march upwards.
This experience was a rude awakening, a crash course in the harsh realities of investing. I realized that just because a company is big, doesn't mean it won't continue to grow.
Large companies like Apple and Facebook have a massive arsenal of resources at their disposal. They have the financial muscle, the established customer base, the brand recognition, and the managerial expertise to drive sustained growth.
On the other hand, smaller companies are inherently more risky. Yes, they can offer enormous growth potential, but identifying the right one is like trying to find a needle in a haystack. It's a gamble, a roll of the dice. While some may strike gold, many others may go under, as I learned from my penny stock fiasco.
The world of investing is not black and white, where large companies are always the safer bet, and small companies are always the riskier choice. It's a spectrum. Large companies can falter, and small companies can flourish. But it's crucial to understand the inherent risks and rewards that come with each.
If I had to condense my learnings into a single piece of advice, it would be this: don't judge a company's future growth potential by its current size.
A large company can still have plenty of room to grow, just as a small company might be on the brink of bankruptcy.
Investing isn't about finding the next Apple or Facebook, it's about understanding the market, the companies, and their potential. It's about maintaining a balance in your portfolio, understanding your risk tolerance, and investing in a mix of stable-growth stocks and potential high-growth stocks.
Today, I maintain a more balanced portfolio, a blend of both large, stable companies and smaller, high-potential ones. I've learned my lessons and continue to learn more each day.
The market is always full of surprises, and as an investor, I am always ready to adapt.
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I recently put together a master list of 88 different ETFs designed to support different investment goals. You can grab it here.
And as always: Buy things that pay you to own them.
-Josh
Blog Post: #113
