Little wonder, this is the approach I recommend for investing in something as rewarding - and at the same time as dangerous if not handled carefully - as penny stocks! Instead, you should only look at the 4 or 5 things that matter, and then buy the stock at such a deep discount that if anything goes wrong, the downside is limited, but if things go right, there's huge upside for the taking.

I am now of the belief that doing in-depth research on stocks could prove to be counterproductive. I have been increasingly drawn towards the second approach in recent years. It therefore follows that when it comes to penny stocks, there are two ways one can invest in them.ĭo a detailed due diligence on the company and come up with as thorough a report as possible.įollow the 80/20 principle look for those 20% insights that give you 80% of the information on your stocks. The value of in-depth fundamental analysis is subject to diminishing marginal returns. Information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. Here's Seth Klarman, one of the world's most successful and recognizable investors on the same ratio. Guess what, this ratio, called the Pareto Principle, pays off in the case of studying potential stock investments, including penny stocks, as well. It is as if this rule is some iron-clad law of nature. If you look around, you'd be shocked at the amazing regularity with which this pattern emerges in our day to day lives as well.Ĩ0% of our calories come from 20% of the food we eat.Ĩ0% of our happiness is determined by 20% of the people in our lives.Ĩ0% of wealth is owned by 20% of the population.Ĩ0% of the clothes we wear form only 20% of our wardrobes.Ĩ0% of the wealth we have made comes from 20% of the decisions we make. As he explored the idea further, this ratio kept appearing again and again. This time, he did not let his discovery go into hibernation. Nearly 80% of the land was owned by 20% of the population.

Lo and behold, he saw the same pattern emerge yet again. This odd fact lay buried in his mind only to be dug up later when on an important assignment.Ī friend had asked him to study the land ownership in Italy. Nearly 80% of his peas came from just 20% of his plants. Wilfred Pareto, an Italian economist, was once out in his garden.Īs he observed his pea plants, he saw an interesting pattern emerge. 10 Rules for Successful Long-Term Investing.Your Ultimate Guide to Penny Stock Investing.(Please do not use this option on a public machine)

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