Hi,
U are confusing Cigar Butt investing with Penny stocks here.
Penny stocks are low priced stocks where majority of businesses are low quality and have known governance problems. One is speculating here purely as a big trading move which might result in a one time pop gain( kinda pump-and-dump). Your assessment is correct here that retail investors should stay away from these cases.
Cigar Butt investing, on the other hand, is a form of value investing whr uncertainity surrounds immediate future earnings but the company has financial power in the form of assets, investments, resources etc. that vl help it survive and probably grow. The delta in expectations is the puff that value investors sniff and try to make gains from. Now few further points here :-
1.) Investments going bad – Some cigar butts do lose out as the expected earnings recovery doesn’t happen or happens with a bit delay
2.) Mgmt – Quite the reverse of what u stated, the expectations discounted in the price of Cigar Butts more than factors for bad mgmts. So as long as basic checks are done, retail investors are fine here. Meeting and assessing mgmts is optional.
E.g of few present past Cigar Butts – Newspaper cos – Jagran, D.B Corp., Godawari Power(when it started debt reduction), S. Chand in COVID, Repro India etc.
Disclosure :- Invested\Was invested in sm of the names mentioned
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