The perennial search for quick money takes us through lot of unknown routes.

It takes a lot of hard work, luck, government lobbying, team building – to create companies like Tata Steel, Hdfc, TCS, Infosys, Reliance, Honda Motors. It takes years, if not decades to create good companies too!

However a few people feel (and they are fed such nonsense by the ads) – pick up a penny stock (also called micro cap) – and it will double in a few months. One ad about which I had written about earlier gives you a game plan by which your US $ 200 becomes a few million – and how you do not need a Retirement Plan at all!

Only if life were so simple! Alas, it is not so. Not so at all!

Cheap stocks – by whatever name called are cheap because:

– NOBODY IS BUYING THEM!

– NOBODY ELSE IS talking to those companies, analysts do not track it, responsible media does not know about them, their boards are unknown,….

-NOBODY IS interested in them! – these are companies which are so small that it does not excite big investors, mutual funds, life insurance companies, etc.

Leave such companies to the big people – let the Enams, JM, Dsp, Kotaks of the world invest in such companies.

If you do not know how to manage your money, being a Venture capitalist is not a great idea, what say?

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  1. There are many meanings of cheap.. and everyone interpret it differently… like cheap price (say 5 rs, 15 rs), cheap valuation (in terms of PE, book value etc)..
    I have seen many TV channels and experts suggest ppl to buy cheap price stocks rather cheap valuation…

  2. The other side of the picture is that, as an investor, you can’t buy what is popular and do well. So you need to buy companies that others are ignoring (like Infosys and HDFC in the 1990s), but your decision needs to be supported by a well-thought out strategy (what if I go wrong?) and deep analysis of the opportunity.

    And by the way, people who invest in companies like Reliance Power and other big names that don’t have much to show in terms of profits or cash flows, are being venture capitalists as well!

    So I believe it’s not about ‘cheap’ or ‘expensive’…it’s only about the ‘business’. If you understand it, buy it. Else, ignore!

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