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Penny Stocks 101

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Penny Stocks 101

Penny Stocks 101

Microcap stocks, also known as penny stocks, are stocks that are trading at less than $5 each with small market capitalizations typically under $300 million. More specifically, as Doug Casey defines it here, many of these types of stocks are more accurately defined as speculations rather than investments. They have no earnings or predictable cash flow, and can’t be evaluated in the ways that Benjamin Graham or Warren Buffett may value a company.

Casey, a legendary speculator, is also well known for saying that he would rather risk 10% of his portfolio for a potential 100% gain, rather than 100% of his portfolio for a 10% gain. The above infographic covers some of the ins and outs of trading such stocks, and many of the ideas presented can apply to junior mining, energy, and technology stocks.

From a potential downside perspective, many of the companies in this category can be risky, unpredictable, and thinly traded. However, for savvy speculators, these same stocks can provide upside that is hard to match. It is all about the approach.

Microcap stocks are inherently volatile, but for those that can stomach it, there is a big profit opportunity. Furthermore, hidden in the market are companies that do have game changing plans or discoveries that could see their valuations rise more than 10x (a ten-bagger, as industry people call it). The key is being able to put in the time, due diligence, and using the right strategy to discover these companies. Being able to let go of opportunities that did not work out by cutting losses early can also be a key.

Original graphic from: Timothy Sykes

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Demographics

How Different Generations Think About Investing

Each generation was shaped by unique circumstances, and these differences translate directly to the investing world as well.

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How Different Generations Think About Investing

View the full-size version of the infographic by clicking here

Every generation thinks about investing a little differently.

This is partially due to the fact that each cohort finds itself on a distinct leg of life’s journey. While boomers focus on retirement, Gen Zers are thinking about education and careers. As a result, it’s not surprising to find that investment objectives can differ by age group.

However, there are other major reasons that contribute to each unique generational view. For example, what major world events shaped the mindset of each generation? Also, what role did culture play, and how do things like economic cycles factor in?

Finding Generational Discrepancies

Today’s infographic comes to us from Raconteur, and it showcases some of the most significant differences in how generations think about investing.

Let’s dive into some of the most interesting data:

1. Investment Outlook

The majority of millennials (66%) are confident about investment opportunities in the next 12 months. This drops down to 49% when boomers are asked the same question.

2. Volatility

How did different generations of investors react to recent bouts of volatility in the market?

  • 82% of millennials made changes to their portfolios
  • 69% of Gen X made changes
  • 47% of boomers made changes
  • 32% of the Silent Generation made changes

3. Knowledge and Ability

In terms of investment knowledge, 42% of millennials considered themselves to be experts in the field. On the same question, only 23% of boomers could say the same.

4. Financial Goals

Back when they were 27 years old, 45% of Gen Xers said their primary goal was to buy a home. Compare this to just 23% of millennials that consider a home to be their primary investment objective today.

5. Managing Investments

The majority of millennials (66%) saw the ability to manage all aspects of personal finance, including investments, in the same app as being important. Only 35% of boomers agreed.

Similarly, 67% of millennials saw recommendations made by artificial intelligence as being a basic part of any investment platform. Both Gen Xers and Baby Boomers were more hesitant, with 30% seeing computer-based recommendations as being integral.

6. Impact Investing

Millennials are twice as interested in ESG (environmental, social, and governance) investing, compared to their boomer counterparts. In fact, the majority of millennials (66%) choose funds according to ESG considerations.

Reasons for Not Investing

While generations may have varying investment philosophies, they seem a little more in sync when it comes to having reasons not to invest.

StatementMillennialsGen XBoomers
Recognize future outlook would be better if they start investing72%73%57%
Want to try out investing with a low money commitment35%31%25%
Afraid of losing everything42%29%28%
Too worried about current financial situation to think about future49%46%32%
Find information about investing difficult to understand63%59%55%
Don't have enough money to start investing55%59%56%

There are some similarities in the data here – for example, non-investors of all generations seem to have an equally tough time learning about investing, and similar proportions do not believe they have the funds to start investing.

On the flipside, it seems that millennials are more worried about their financial future, while simultaneously seeing a risk of “losing everything” stemming from investing.

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Chart of the Week

A Visual History of the Largest Companies by Market Cap (1999-Today)

See how the world’s largest companies have changed over time, and how this helps tell a broader story about what the market is thinking.

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A Visual History of the Largest Companies by Market Cap

The macro narrative that underlies the market is constantly under revision.

While this is partially a function of shifts in investor sentiment, it’s also driven by game-changing events as well as much more structural market forces.

For example, how does the macro narrative change after a commodity price crash? What about when the unprecedented scale of technology is truly understood by the market?

An Evolving Narrative

In this week’s chart, we look at how the big picture narrative has changed over time by using a very simple approach.

We have visualized the market capitalizations of the 10 largest public companies in the world over five-year intervals from 1999 until today, and it gives us a series of snapshots of what the market was “thinking” during these specific periods.

Not only is it evident as certain industries rise to prominence, but there are also some interesting individual stories to follow. We can see iconic companies – such as Apple – ascend into the public consciousness, while others fall off the radar completely.

YearDescriptionTop CompanyWho Dominates Top 10?
1999Dotcom BubbleMicrosoft ($583B)Five tech companies in the mix
2004Post-BubbleGE ($319B)Diverse mix of companies by industry
2009Financial CrisisPetroChina ($367B)Six non-U.S. companies make list
2014$100 OilApple ($560B)Last year for oil companies, tech starts ascending
2019Big Tech EraMicrosoft ($1,050B)Seven companies are tech

The composition of the top 10 changes in each of the snapshots above, and this simple approach helps capture the market narrative for each timeframe.

During the Dotcom Bubble, you can see that half of the list was dominated by tech companies. This was short-lived, and the years 2004, 2009, and 2014 have much more diverse lists.

You can also see the impact of the financial crisis on U.S. company valuations. In 2009, there is an equal distribution of Chinese and American companies. Royal Dutch Shell (UK/Netherlands) and Petrobras (Brazil) help round out the top 10.

Finally, over the last five years, you can see the impact of lower oil prices and the growing scale of tech. Back in 2014, Exxon Mobil was the second largest company in the world by a solid margin, but today it’s been displaced by companies like Facebook, Amazon, Tencent, and Alibaba.

The Big Tech Era

Here is the current top 10 list of the world’s largest companies by market cap:

RankCompanyIndustryMarket Cap
#1๐Ÿ‡บ๐Ÿ‡ธ MicrosoftTech$1,050 billion
#2๐Ÿ‡บ๐Ÿ‡ธ AmazonTech$943 billion
#3๐Ÿ‡บ๐Ÿ‡ธ AppleTech$920 billion
#4๐Ÿ‡บ๐Ÿ‡ธ AlphabetTech$778 billion
#5๐Ÿ‡บ๐Ÿ‡ธ FacebookTech$546 billion
#6๐Ÿ‡บ๐Ÿ‡ธ Berkshire HathawayDiversified$507 billion
#7๐Ÿ‡จ๐Ÿ‡ณ AlibabaTech$435 billion
#8๐Ÿ‡จ๐Ÿ‡ณ TencentTech$431 billion
#9๐Ÿ‡บ๐Ÿ‡ธ VisaFinancial$379 billion
#10๐Ÿ‡บ๐Ÿ‡ธ Johnson & JohnsonConsumer Goods$376 billion

In total, the five biggest tech giants brought in a combined $801.5 billion in revenue last year, and $139 billion in net income.

The Staying Power of Microsoft

With a valuation today of just over $1 trillion, Microsoft is again the world’s largest company by market capitalization.

In this way, the above lists come full circle, since Microsoft was also the biggest company in 1999.

While the software giant experienced short periods where it did drop out of favor, Microsoft was the only company to make the list in our five snapshots above.

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