How to make big money in the exciting world of penny shares
So what exactly are penny shares? And why are they so exciting?The simplest definition of a penny share is a share that can be bought for pennies. In other words, it's a share that costs less than a pound or a dollar but, in South Africa, we regard a penny share as a share trading under R10.But price isn't really the most significant thing about a penny share. What's far more important and exciting is the actual size of the company itself. In other words, when we look out for penny shares, we're looking for small companies that have a fantastic potential to grow. And by investing in them, as these small companies grow, we reap the rewards!Because, of course, it's far easier for a small company to grow than a big one. A restaurant company with only ten branches can easily double in size. Whereas a large, established chain of restaurants with branches in every city has nowhere to go. So small companies are where you, as an investor, can find real opportunities to make big profits.When we're comparing the size of different companies, we do this by looking at their "market capitalisation" ("market cap" for short). Don't be put off by the technical term... "Market capitalisation" simply means the total value of all the shares in a company. In other words, if a company issues 200 million shares and the share price is R1, then that company's market capitalisation is 200 million x R1 = R200 million.The top companies on the Johannesburg Stock Exchange (JSE) have market capitalisations of billions of rands. For example, currently MTN has a market capitalisation of R216.244 billion. That's a big company.By comparison, the companies we're looking for in Red Hot Penny Shares are tiny. In fact, in Red Hot Penny Shares, we pick out the very best companies that have a market capitalisation of less than R150 million. These are where the big opportunities for the private investor lie.Don't forget that, barring a few big exceptions, all the huge companies sitting on the JSE Top 40 started life as penny shares. They all sold products and services that people wanted and kept growing at a consistently fast rate. Perhaps they bought some of their rivals or diversified into new areas of business. But what matters is these companies have been winners and consistently successful for long periods of time. If you'd invested in any of these companies when they were starting out, you could be sitting on tens of thousands, if not millions, of rands!At Red Hot Penny Shares, we're here to help you invest in shares that have the potential to make you a lot of money.For all the latest recommendations start your Red Hot Penny Shares one month no obligation trial today.Where are penny shares bought and sold?The penny shares that we're going to invest in are all companies whose shares can be bought and sold on the Johannesburg Stock Exchange (JSE) – the main market in South Africa. There are two main “areas” of the JSE – the Main Board and the Alternative Index (AltX).If you’re new to investing, you needn't worry about the details of these markets. When we recommend a share in Red Hot Penny Shares and you decide you want to buy it, all you have to do is contact your stock broker and tell him the name of the company. It's all very straightforward. But so you can understand the basic differences, here's a brief explanation of the different markets:Johannesburg Stock Exchange - The Main Board:To get on to the JSE's Main Board, a company needs to have a satisfactory audited profit history for the preceding three years and have at least 20% of its shares available for the public to trade. In return for the slightly more stringent requirements, the company gains access to a highly liquid market. By “liquid”, we mean there are many buyers and sellers of shares and it's easy to trade larger quantities of them at any time. Many of our penny shares are traded on the Main Board.Johannesburg Stock Exchange – The Alternative Index (AltX):The AltX started up in 2003 and it runs parallel to the JSE Main Board. It was introduced to help small and medium companies raise capital for business expansion and development without having to comply with the rather onerous and expensive listing requirements on the Main Board. The requirements for admission to the AltX are more straightforward. Only a profit forecast for the remainder of the financial year in which the company lists and one full year thereafter’s required, and only 10% of shares must be placed into the hands of the public. This means there are sometimes not many shares available for trading in a share, making this market slightly less liquid.How to keep track of the small company sector as a wholeThe Mid-Cap and Small-Cap indexes were introduced in 1996 after the successful introduction of the 100% All Share Index in 1995 and the Alsi40 Index in 1995. The Mid-Cap Index and Small-Cap Indexes provide an independent benchmarking tool for portfolios that are weighted towards medium and smaller capitalisation companies.JSE Small-Cap IndexThe JSE Small-Cap Index isn't a marketplace, but an index of smaller company shares quoted on the JSE. It's made up of the companies in the JSE that are outside of the Alsi40 and Mid-Cap by market value. Many of our shares are constituents of this index, so it's a good indicator of how smaller companies similar to our own are doing overall.JSE Mid-Cap IndexThe JSE Mid-Cap is another index. This index comprises the next 63 shares of the All Share Index, ranked by market capitalisation, that fall outside the Alsi40 index. The Alsi40 Index and the Mid-Cap Index make up the top 130 shares of the All Share Index and offer a useful tool in tracking the largest companies listed on the JSE.So that's the basics of what a penny share is, and where they're traded.
Now for the really exciting stuff Why penny shares are great for the private investor, eight rules for successful investing and how to build a successful portfolio of shares all you need to do is start your Red Hot Penny Shares one month trial.
The past is not a guide to future performance. Trades in stocks recommended by Red Hot Penny Shares are small company shares. By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances.
