Sometimes, you invest something that defies logic. Imagine a listed company with no revenues, no earnings, no cash. A company that engages in oil exploration. It's running on cash burn of USD1.9m per year, with no cash in its books. A company that cannot repay its short term debt.
It has 77.7m shares. What if it secures a USD100m contract? Or what if its share of the oil proceeds is USD1m or even 10m per annum? I bought 500 shares at USD0.00468. If it earns even USD1m, its EPS will be USD0.0129. At 20x PE (assuming its growth rate is 20% so PEG is 1x), it's fair price will be USD0.2574. My initial investment of SGD3500 will turn into a princely sum of SGD192,500! What if its earnings is USD10m per annum? Its EPS would be 0.1287. At 20x PE, its share price will be USD2.574! My initial investment of SGD3500 will turn into SGD1,925,002!
That's what I call a lottery ticket! If I lose it all, it won't make a dent in my portfolio. I can deal with that.
What if my portfolio comprises 100 of such "micro penny" stock? If just 1 of them turn into SGD1.925m, I wouldn't mind losing all the rest too! Now that's a pretty impressive return-risk ratio!
