RT, Co Down
There is no exact definition of what counts as a penny share, but shares whose current market value is 50p or less may be included. Some shares are literally just one or two pence each. Important to note, however, is that just because shares are priced at a few pence does not necessarily make them "cheap".
A share is seen as cheap if, for example, it has a higher dividend as percentage of its share price than similar shares, or if it has greater potential for growth in value. A share in a large blue chip company could be cheap at pounds 5, while a penny share could be expensive at 3p. Indeed, the 3p shares would be vastly overpriced if they were in a company on the verge of liquidation.
In fact it is often the case that penny shares are in companies that have fallen on hard times. Investors have to work out whether there is a real prospect that the company will be turned around and restored to profitability. Some companies are simply "shells", whose value lies in their stock market quote - ready for a more healthy enterprise to back into that company and get a stock market quote. Other penny shares may be in small companies with a product that will provide a double or quits return.
All penny shares are high risk. Even those that do perform usually have to perform well for you to make a profit. That's because there is usually a large difference between the buying and selling prices, called the spread. For example, if the buying price is 15p and the selling price 12p, the 3p spread is 25 per cent of the selling price, which is high by share standards. The value of the share has to rise by 25 per cent for you simply to get your money back (let alone make enough to pay for dealing costs).
Spread aside, because the prices of penny shares are low, small price movements can mean big gains and big losses. A rise in share price from 3p to 4p would be a 33 per cent gain. A fall from 2p to 1p would be a 50 per cent loss.
Lucky investors will make a killing on their selections but many penny shares will go nowhere and may eventually sink without trace.
There are two monthly tip sheets concentrating on penny shares. Penny Share Guide costs pounds 29 for the first year's subscription, pounds 59.50 in subsequent years. For details ring 0181-768 0080 or write to Penny Share Guide, 271 Regent Street, London WlR 7PA. Penny Share Focus costs pounds 15 in the first year and then pounds 59.50 a year. Ring 0171-417 0700 or write to Penny Share Focus, 28 Charles Square, London N1 6HT.
When the privatisation of British Rail was announced I read that pensioners of BR - of which I am one - would receive free Railtrack shares. So far I have not received the shares. Can you help?
CP, East Sussex
The free shares were only on offer to those British Rail pensioners who would have been employed by Railtrack had it existed previously. These pensioners have now been transferred to the Railtrack pension scheme.
Eligible pensioners were written to in May and were asked to fill out an application form for the free shares. The shares were not sent out automatically.
If you think you were eligible but did not receive the May notification, you should write to Jacqui Holman, Legal Secretariat, Railtrack plc, 40 Bernard Street, London WC1N 1BY
Write to Steve Lodge, personal finance editor, Readers' Lives, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number. Do not enclose SAEs or documents that you wish to be returned. We cannot give personal replies and cannot guarantee to answer every letter. We accept no legal responsibility for advice.Reuse content