We have always seen that most people, especially newcomers, get attracted to penny stocks. Penny stocks generally refer to shares that are trading below ₹10–₹15. Most of the new investors in the market believe that if they buy such cheap shares, they will grow faster and give higher returns in a short time. But in reality, this doesn't happen.

Even if you talk to someone who knows nothing about the stock market, and if you tell them about it, the first thing they say is, "Tell me about small shares like ₹2 or ₹3, or ₹5–₹6 ones." Why? Because they think such shares will rise fast, and also because they can buy more quantity. For example, with ₹1,000, you can buy 500 shares of a company whose price is ₹2. This gives them another kind of confidence: “I bought 5000 shares, now even if the stock rises a little, I will make good money.”

But one thing you should think about is—why is this stock trading at just ₹2? If the company’s business is really good, then its share should be trading at ₹2000 or ₹2500. There must be a reason the stock has fallen so low. That’s why instead of just focusing on the stock price, the focus should be on the company’s business. But most people neglect this completely.

People often give the example of Rakesh Jhunjhunwala, saying that he bought Titan shares at ₹2–₹3 and became a billionaire. But what they forget is that Rakesh Jhunjhunwala bought Titan shares in the early 2000s. At that time, most NSE stocks were trading at such prices. For example, even Bajaj Finance was trading at ₹5 per share. Also, Rakesh Jhunjhunwala invested only 5–6% of his total portfolio in Titan. So, even if Titan had gone bankrupt, it wouldn't have impacted his financial health much.

But today, retail investors make a big mistake. They invest 80–90% of their portfolio in penny stocks. And most of these penny stocks fail. Why? Because they have already fallen more than 90% from their all-time highs. If a stock has fallen 90%, it means something really bad has happened—maybe a fraud by the CEO, financial scam, poor management, or completely failed business model. Rarely do such companies recover. Only 2–3% of penny stocks make a comeback. The rest either disappear or stay stuck.

Still, retail investors buy such shares only on hope. They keep thinking, “This stock will recover and give me multibagger returns.” But that’s not how things usually work in reality. Look at the shareholding pattern of stocks like Reliance Anil Ambani Group, Videocon, JP Group, Vodafone Idea, etc. Most of these are filled with retail investors. These people are just sitting with hope that one day they will get big returns. But in most cases, that day never comes.

And even if the stock goes up for a few days, what next? After that, lower circuits begin. Once a stock hits a lower circuit, you cannot sell it. There is no liquidity. You are stuck holding shares that you cannot sell, no matter how much you want to. This is the painful truth that many learn only after losing money.

So what's the smart thing to do? Invest in companies where the fundamentals are strong. If you don’t know anything about the stock market, it is better to invest in mutual funds. You may not get massive returns overnight, but your investment will be much safer. Safety should be the first priority, not greed.

So next time, before you jump in to buy a ₹2 stock just because you can get thousands of shares, ask yourself—why is it ₹2 in the first place? Understand the business first. Focus on the company, not the price. That’s how wealth is built in the long term.

Disclaimer: this article is for educational purposes only. investing in stocks carries risk. always do your own research or consult a financial advisor before investing.