you are respectfully incorrect about stocks such as microsoft being a penny stock. it never was.
Two common fallacies pertaining to penny stocks are that many of today's stocks were once penny stocks and that there is a positive correlation between the number of stocks a person owns and his or her returns.
Investors who have fallen into the trap of the first fallacy believe Wal-Mart, Microsoft and many other large companies were once penny stocks that have appreciated to high dollar values. Many investors make this mistake because they are looking at the "adjusted stock price", which takes into account all stock splits. By taking a look at both Microsoft and Wal-Mart, you can see that the respective prices on their first days of trading were $28 and $25 even though the prices adjusted for splits is $0.09722 and $0.02444 (at time of writing). Rather than starting at a low market price, these companies actually started pretty high, continually rising until they needed to be split. (Click here for a spam that claims Microsoft and Wal-Mart started out as penny stocks.)
The second reason that many investors may be attracted to penny stocks is the conception that there is more room for appreciation and more opportunity to own more stock. If a stock is at $0.10 and rises by $0.05, you will have made a 50% return. This together with the with the fact that a $1,000 investment can buy 10,000 shares convinces investors that micro cap stock are a rapid surefire way to increase profits. For some reason, people think of the upside but forget about the downside. A $0.10 stock can just as easily go down $0.05 and lose half its value. Most often, these stocks do not succeed, and there is a high probability that you will lose your entire investment.
