Pennies from heaven

Penny stocks tend to be highly illiquid. In other words, it’s difficult to buy and sell them at favorable prices.

Even so, the lure of low-priced shares is hard for many market participants to resist, especially the novices like in 2000, when penny stock trading had reached a fever pitch.

Well, just about the same thing has been going on this year. Here’s a Jan. 20 Reuters headline: Analysis: A ‘buy’ is just a tap away: stock market dabblers drive trading boom into 2021.

Total Penny Stock Dollar Volume hit $72 billion in January, the highest level since the first three months of 2000, when the dotcom mania peaked.

Other than when dotcom mania peaked and other than those three months, when penny stock dollar volume averaged a whopping $155 billion, the value of shares traded in January 2021 was the highest. This suggests a nearly unprecedented acceptance of risk…

This chart shows the average daily trading volume in penny stocks.

In a Feb. 16 Bloomberg article headlined ‘Penny Stock Craze at Boiling Point…,” a portfolio manager is quoted:

“It is very markedly similar to what we saw in 1999 with these day traders and novice investors coming in and treating the market as a get-rich-quick type.”

Suffice it to say: it appears historic.