Why Pharmaceutical Penny Stocks Just Aren't Worth the Risk
In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser and Motley Fool Stock Advisor analyst Brendan Mathews take a question from a reader who asks: "Based on a tip from a friend's hairdresser, I invested in a pharmaceutical penny stock. In a short time, I've made multiples of my original investment. I've taken my original investment off the table, but I'm going to let the gains ride. What do you think of my plan?"
Brendan explains the difference between a good process and a good outcome using a baseball analogy. Clearly, this is a situation of a bad process (i.e., taking a penny stock tip from a friend's hairdresser) with a good outcome (the investment has generated huge returns so far) -- that happens in investing, baseball and many other areas of life. Brendan goes on to point out the dangers of investing in penny stocks -- most penny stocks don't work out well for investors. Jason seconds Brendan's opinion on the dangers of penny stocks, and he points out the uncertainty involved in small pharma stocks. Without knowing the details of this specific penny stock, both Brendan and Jason are skeptical of continuing to hold it, even if it's generated good returns so far.
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