Penny stocks are shares of small companies or businesses that you can buy and sell just like regular stocks. Their price per share is usually cheap and commonly under a dollar each and that’s why it’s called penny stocks. These are companies that have small capitalization and are just in the process of starting up and growing or disappearing. A few of them will become successful and will grow in the future and become a regular stock like the big companies we see these days. At that point their capitalization and share price will be tens or hundreds of times of when they were still a penny stock.
If you are lucky and bought a penny stock that will become a multi-billion dollar company in the future then you could become a millionaire with a relatively smaller investment you put. But the problem is picking which of the thousands of penny stock companies will survive and grow. No one knows who will be the next Apple, Microsoft or Amazon from the current list of penny stocks today.
I don’t recommend buying penny stocks due to the very high risk associated with it. You can diversify and buy one share or a few for each of all the penny stocks and hold on to them for a very long time. But by doing this, you will be spreading your money thinly across them and even if a company grows by a thousand times, the number of shares you hold will be small that you might end up just breaking even or having a small profit after many years of waiting. Besides, spreading your money in penny stocks is not really diversifying because all of it is in high risk investment.