I'm currently reading the book, "In Sheep's Clothing: Understanding and Dealing with Manipulative People". In it, I came across a section referencing what's referred to as the "Slot Machine Syndrome". As is often the case, the psychology of different aspects of life can also be found in the world of penny stocks. There are four reasons why a person can get trapped in this syndrome, three of which I think are quite appropriate when it comes to penny stock investors.
1. There's the appeal of the "jackpot". People jump at the chance to get a lot for what initially appears to be a very small investment.
2. Every now and then a "cherry" or some similar small jackpot appears and you "win" a little something. This reinforces the idea that your investment is not for naught and that winning a larger payoff is really possible if you just keep investing.
3. After you've been worn down by the machine's abuse and are tempted to walk away, you're faced with a most difficult dilemma. If you leave, you leave behind a substantial investment. To disengage with nothing to show for your time and energy but a broken spirit is hard to do. You're tempted to delude yourself by saying: "If I just put in one more quarter."
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