What Kind Of Returns Can You Expect? (And Some Thoughts On Penny Stocks)

A typical question goes like this:

Hi
I have query on per year return. Is there any strategy by which we can earn 50-100% per year with less than 25% drawdown?

Many dreams of striking it rich. However, it’s unrealistically to make more than 50% in trading without taking risks.

Our rule of thumb is like this:

If you can get 10-15% annual unleveraged returns without significant losses, you should be very happy. 15% per year is something most hedge funds only dream of. The fact is, if you manage 15% per year you’ll have money thrown at you.

Thus, before you start, we believe it’s important to have realistic ambitions.

Penny stocks

Many traders are lured into penny stocks when they dream about unrealistic returns.

Penny stocks offer a low entry and often the lure of striking it big. The internet is full of stories about how you can make millions and gain thousands of percent of returns in penny stocks. Is it any reality in this? Can you get rich trading penny stocks?

Unfortunately not:

You are unlikely to get rich trading penny stocks. On the contrary, you are much more likely to lose your money. Penny stocks and OTC stocks have an average negative annual return of 24%. Over 90% of penny stocks fail!

Penny stocks are bad investments (and hard to trade) because many of the companies have unproven business models, they are illiquid, they are exposed to scammers, and they are very volatile. Most penny stocks end up worthless. It’s very difficult to find consistently profitable penny stock strategies.

You are very likely to be a victim of a pump and dump scheme, something that benefits just a few “investors” and fraudsters. Stay away if you see a pump and dump. Don’t let the fear of missing out strike you.

A pump and dump scheme is where a promoter acquires a position in a stock, normally a penny stock, and then tries to artificially increase the share price by spreading false or misleading information about the company.