Penny or cents are a part of American currency. A 100 pennies make a dollar, while a 100 paise makes a rupee. They\u2019re both the lowest form of physical money in their countries, even if 1 penny is about 73 paise. But you can\u2019t buy a lot with 73 paise these days. In the ’60s, you could get a masala dosa for that amount. However, a masala dosa now costs anywhere between Rs 50 to Rs 200. <\/p>\n\n\n\n
A worker from the ’60s would have perceived 50 paise differently than the modern millennial. Value then becomes relative and hard to define. Value in investing is found when you recognize the stock’s potential and worth and act on it, no matter how cheap or risky it is perceived to be. For example, shares of Symphony<\/a>, a relatively unknown company in the cooling industry, surged a massive 43,000% \u2013 from Rs 3.64 on 20th Nov 2007 to around Rs 1,567 by 2017.<\/p>\n\n\n\n While multiple factors affect such rapid growth of a company like Symphony, they are usually extended. Rarely does a stock gain significantly in a short period of time as it takes time for even top-performing companies to grow. COVID was and is a rarity and caused severe fluctuations in the market. Throughout 2020, BSE Sensex<\/a> and Nifty 50<\/a> dropped by over 30%. Companies scaled back, layoffs have been rampant, and multiple industries were shot down, leading to rapid stock fluctuations. In contrast, some companies have thrived in this period leading to a largescale rise in return rates, similar to Symphony. <\/p>\n\n\n\n Penny stocks<\/a>, such as Symphony\u2019s, can provide great returns. They are called penny stocks<\/a> because they are cheap and come at a lower price. They are also called smallcap or nano-cap stocks<\/a>. Smallcap companies are those that have a market capitalization rate of fewer than Rs 5,000 cr. A company’s market capitalization is the total number of outstanding shares multiplied by its current value. For instance, if Apple is currently valued at $2,000 and has 6,00,000 shares, then its market capitalization is $2 bn.<\/p>\n\n\n\n Like how Maggi Noodles became synonymous with 2-minute noodles and spawned a flurry of Indian batsmen jokes, penny stocks got the name because of their meager prices. The Indian team has performed brilliantly although cheap accusations and so too have penny stocks proving that they are worth their weight in\u2026.well, stores! Penny stocks are low-cost stocks, usually less than $5, that can generate returns many times (10x to above 1000x) your investment. Coined by the great investor Peter Lynch, stocks that generate multifold returns are called multibagger stocks<\/a> or multibaggers. Penny stocks that do the same are called penny multibaggers.<\/p>\n\n\n\n This article covers:<\/strong><\/p>\n\n\n\n