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Penny shares |
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Penny sharesLiterally, any share costing less than 100p, but in a recent paper on the subject, the Financial Services Authority designated penny shares as shares which have limited liquidity - in other words, that are hard to buy and sell in quantity without moving the price. Specifically, the FSA singled out those with a spread of 10% or more between buying and selling prices.The FSA definition highlights one of the dangers of penny shares: in order to make a profit on them, you need a significant rise in share price just to cover the wide spread. There is no evidence that penny shares as a class have any more potential to appreciate in price than higher-priced shares. The reason is simple: Price in itself is not a measure of value. It only becomes a measure of value in relation to other factors, e.g. price-to-earnings or price-to-assets.Novice investors often make the mistake of equating low share price with value. That's a fundamental error. A share costing £10 can easily be better value than one costing 10p, if the Net Asset Value per share of the two companies is £12 and 5p respectively. What matters is the size of the 'cake' to which the shares relate, and the number of shares in issue.Similar MatchesOrdinary sharesOrdinary sharesApples mainly to international equities. Shares of non-U.S. companies traded in their individual home markets. Usually cannot be delivered in the US See: ADR. Windfall sharesWindfall sharesFree shares issued to members of demutualised societies. Recovery sharesRecovery sharesShares which have fallen in value but are considered to be capable of recovering to their former price. Stepped preference sharesStepped preference sharesPreference shares with dividends which increase annually by a specified amount and with a predetermined capital return. Class A or Class B sharesClass A or Class B sharesSee: Classified stock Further SuggestionsPaired sharesguilder shares (New York Shares) Identified shares cumulative preference shares Common shares Performance shares redeemable preference shares gamma shares Equal shares swap Outstanding shares nil paid shares permanent interest bearing shares income shares preference shares bearer stocks/shares ordinary shares Treasury Shares Shares authorized American shares capital shares Capital shares delta shares participating preference shares partly paid shares Shares |
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