You Get What You Pay For
There are so many concepts about the stock market that are taught in the classrooms, promoted throughout the media, and passed along from generation to generation but, unfortunately, most of them are FLAT OUT WRONG!
I decided to write a 5-part series (this is part 3 of 5) on the common misconceptions that really need to stop being promoted. Keep in mind, these are all my humble opinions, but after 16 years of trading and studying market history, one really begins to notice what works and what doesn’t.
Common Misconception #3 – Buying Low-Priced Stocks
In September of 2004, a friend of mine had $20,000 he wanted to invest in a stock. I told him to buy $GOOG. He asked: “How much is it trading for?” I told him around $105. He immediately jumped out of his chair and yelled: “105 dollars per share!!!” It was a similar reaction to the one Doc Brown had in the movie Back to The Future when he screamed: “1.21 Gigawatts!”
I asked my friend what was the big deal? He said that it wasn’t worth it for him because he couldn’t buy many shares. This is a common misconception that I hear all the time. Many investors only think about the number of shares they can buy, when they should really be thinking about percentages. For example, people would rather buy 10,000 shares of a $2 stock than 100 shares of a $200 stock.
This is all wrong and leads me to my main point: You get what you pay for! What I mean by this is most lower priced stocks are low for a reason. They are usually struggling, low-rate companies that are not backed by the institutions. Think about it in today’s market. The majority of the quality stocks out there all trade for $50 per share or higher. There’s a reason a steak at Morton’s cost more than a hamburger at McDonald’s. It’s because you are paying for quality. In addition, these “expensive” stocks tend to be highly supported by the institutions.
This point is especially important for beginning investors who are trying to turn a small amount into a larger one so they can “afford to buy $AAPL.” You can afford to buy a higher priced stock right now if you simply think in terms of percentages. As for my friend, well, he bought 10,000 shares of a $2 stock that he sold at 60 cents one year later. Meanwhile, $GOOG tripled during that same time. Oh well
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Big Winning Stocks Webinar Recording
Thank you to everyone who tuned into our Webinar on Big Winning Stocks featuring Frank Zorrilla (@ZorTrades) and hosted by Butch Stearns (@ButchStearns). Here is the link of the recording:
http://tpn.thepulsenetwork.com/clients/trading-big-winners/identifying-big-stock-market-winners/
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Joseph Fahmy has over 16 years of trading experience during which he developed his investment strategy. Joe worked in New York...More » -
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