Blog : Systemic vs. Non-Systemic Risk

by Peter Leeds on October 15th, 2012

In the world of penny stocks to buy (and all types of investments to buy, for that matter), there are two kinds of risk factor.

Systemic Risk is about downside in the penny stocks you buy due to the overall market environment. Meaning, when all penny stocks are dropping together, it is probably because of overall investor sentiment towards the entire market.

Non-Systemic Risk is about individual penny stocks that you buy which drop in price, independent of the overall market trend.

So, if you buy are holding 10 penny stocks, and they all go down (or up) together, that is probably a symptom of systemic risk. If 9 go up (or trade flat) and 1 goes down significantly, that is a much bigger problem. That is non-systemic risk, and it could signal that your lone loser of the 10 penny stocks is not is good shape.

The penny stock markets have been hurting a bit in recent weeks (and months), but you will notice that this weakness is across the board. And it's not even that people are selling shares, so much as nobody is interested to buy or sell. The activity levels seem to be anemic.

Don't fret, however. I have been in the business of penny stocks to buy for a really long time (yes, I know I look young!) and I've seen this type of market many times before. Call it taking a breather, call it consumer confidence distractions, call it whatever you like, but what's really going on is called capitulation.  Learn more about capitulation in stocks to buy here.

Systemic weakness almost always bottoms out into a capitulation pattern. Lower volatility in penny stocks, lower activity... but what else is happening at the same time? Shareholders are quietly turning over. A certain portion of the outstanding shares of each of these penny stocks to buy is falling into new hands.

New buyers of penny stocks are less likely to sell (they just bought!) and are very likely to be holding for a longer term. Eventually, the percentage of investors that are 'unwilling to sell' increases, chocking off supply.

In penny stocks to buy, little supply translates into major upside moves, the very moment that the buy demand returns.

So, when does the buy demand for penny stocks return?

The answer: eventually. This is 100% correct and true, penny stocks will see their buy demand eventually return. Besides that statement, no one can know exactly when penny stocks will see an uptick in buy interest.

What does this eventually mean? It does NOT mean years. In means months. A few months. One month, five months, this is not yet known. But, it will be known soon.

My personal opinion (based on my research and expertise) is that we could see a great run-up in buy demand for penny stocks (system wide) a couple months after the election. Am I correct? I do not yet know.

Investors getting involved in penny stocks to buy before such demand almost always make out pretty darn well. Like strawberries in June, this may be the best time to buy penny stocks.

If you want professional stocks to buy, visit the Peter Leeds website.