That's one reason. Another is buying power.

With penny stocks, it is far easier to buy more shares as well as diversify between companies. Say you have 4 companies you're interested in buying, but only have $100 to spend. If they are all $50 a pop, you can't do it. Now, if they are all $5 per share, you can get into all of these positions. Thus, buying a diversified portfolio.

The third reason for picking penny stocks over more expensive ones is the price itself.

If a company is sitting at $50 per share, it takes $5 swings to really start seeing profits or losses. With a $5 company, it takes only about 50 cents, which can easily be done in a day of trading. The smaller the price per share, the larger the price swings. That's how short-term penny stock traders have been making millions over the years.

Whether you are a short-term investor or in it for the long haul, you can see that small caps, and specifically penny stocks, are the way to go.

The truth is we love small caps. It's far easier for a $100 million company to double than it is for a $100 billion one. It's as simple as that…

To get daily small-cap analysis from around the world sent straight to your inbox, sign up for the Penny Sleuth.

Sincerely, Jim Nelson

P.S. Over the years, many have tried to refute Banz's study. Critics say that it doesn't factor in companies that go belly up and fall off major exchanges. There is some merit to this. So instead of blindly picking small caps to invest in, it's good to have someone in your corner. The Penny Sleuth is in your corner.

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