Investing is different from many other pursuits in one crucial way: doing the wrong thing as an investor can actually make money for you, but only temporarily.

Buying low-quality Canadian penny stocks is a mistake that many investors make. Some get hooked on it, since low-quality stocks can be highly profitable over short periods. That’s because they are generally more volatile than the high-quality stocks (the kind that have a history of earnings, if not dividends) that we recommend in our Successful Investor newsletter.

Here are 2 risks you face when you overindulge in Canadian penny stocks:

1. Low-quality Canadian penny stocks are quick to fall when the bubble bursts: A decade ago, buyers of Internet start-ups made far more profit than investors who stuck with well-established companies. The same thing happened when many investors bought low-quality resource stocks in 2007 and 2008, and it has happened in past in penny stock bubbles. When the bubble bursts, however, prices of low-quality stocks inevitably come crashing down. After all, it’s much easier to launch a stock promotion than it is to create a successful, lasting business.
   
   Penny stocks tend to be more speculative, and are engaged in such things as finding mineral deposits that can be mined at a profit, commercializing an unproven technology or launching new software.

Are Penny Stocks Worth It? Learn everything you need to know in 'Canada's Penny Stock Guide' for FREE from The Successful Investor. Canadian Penny Stock Guide: Find where to find Penny Stocks that pay well.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

• Because success in these endeavours is rare, it’s all the more important to look for investment quality in penny stocks.

2. The longer you play, the likelier you are to lose: If you lose money in speculative or other low-quality stocks (or funds that invest in low-quality stocks), you may think your main mistake was bad timing. That’s a misconception. You can get lucky in penny stocks, just as in lotteries. But if you play long enough, the “house odds” eventually triumph over any run of luck. In penny stocks or games of chance, the odds are against you. So, time works against you. The longer or more often you play, the likelier you are to lose.

How our three-part investment strategy puts time in your favour

You can put the odds in your favour by following our three simple tsinetwork.ca rules: Invest mainly in well-established companies, spread your money across the five main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities), and avoid or downplay stocks in the broker/public-relations limelight.

This puts time in your favour. The longer you stay invested, the more likely you are to come out ahead.

You can get our latest analysis, including our clear buy/sell/hold advice, on dozens of Canadian stocks you may be considering buying in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

All best wishes from all of us here at tsinetwork.ca. We wish you and yours a terrific year-end holiday and a healthy, happy and prosperous New Year!