The newbie obsession with low share price stocks

trickynick said: "We seem to get a lot of newbies lately who want advice on what stocks to buy and are preoccupied with finding stocks with a low share price. The dangerous thing about this mentality is that stocks with low share prices are likely to be exactly what they don't want to be buying for what objectives these guys likely have. Stocks that demonstrate good growth characteristics are not going to have share prices below $5 and most likely not below $10 either. This is because growth stocks trade at higher valuation multiples, there is more demand for the shares from institutions and hedge funds and if their sales are growing significantly they are probably not having to raise cash by selling more stock and thereby devaluing their shares. On the other hand, if you are pursuing a deep value strategy finding low share price stocks MIGHT make a certain amount of sense but something tells me these guys are not reading that far into it. Aside from what I mentioned above, share price really isn't all that important. The company is not "cheap" because its shares are cheap. It is cheap if the value of the company is mismatched with its intrinsic value based on its fundamentals. How you determine that is beyond the scope of this post, but the main point here is that it is not the SHARE PRICE. If you think that the share price is so low that it can't go much lower so there is less risk in ownership, believe me it can go much lower. If you think that you are likely to make more money from small increase in the price because you will own more shares, that is wrong thinking too. If it gives you an ego boost to own 1000 shares rather than 50 so you indulge in some childish fantasy about being big-man-on-campus at the annual shareholder's meeting, you are buying for the wrong reasons. If anyone would like to explain to me why wanting to own stocks at low share prices for any reason that is not either technically oriented or part of some kind of esoteric deep value strategy, I am all ears."

Darren said: "It's human nature to want to get "a lot for a little". Stock marketers prey on this basic human desire. Plus, online, most websites are encouraging these suckers to buy. It's rare when you find a forum where someone will tell you the truth: [B]share price is the STUPIDEST criteria of all to base a buying decision on. [/B]Figure as soon as they get really burned the first time, their whole attitude will change fast."

natser said: "Well i guess that is that you can make much much more on the cheaper stocks then on the more expensive stocks. Imagine 10% profit on the stock that cost $2.50, its only .25 and now imagine 10% on the stock that cost $25.00 its $2.50. That is the number one reason the poeple like to trade chaper stocks. Also with the lost is the same thing, but if the expensive stock that cost $25.00 crashes and drops to $10.00 per share that is a huge loss!:D"

Harry said: "But the focus on good stocks with promising futures is "the best bet". Penny stocks are garbage...pure gambling. The guy whoo introduces it to you it hoping your buy with boost the stock and boost others to buy it as well...the that guy sells and runs. Low cap stocks mostly stay low cap stocks. You really have to have a feel for the industries your investing in to see any future growth. If competitiors are to big and too dominant...fagettaboutit! If there's hype about any stock...it's already too late. Look for the ones just rising out of the dust."

natser said: "LOL Herry. I just gave the same advice on the " Where can you find good inexpensive stocks?" section in "the Let's Talk Stocks" forum! And now I am reading the same thing! HaHa. By the way where did you learn how to trade?"

Harry said: "[QUOTE=natser]LOL Herry. I just gave the same advice on the " Where can you find good inexpensive stocks?" section in "the Let's Talk Stocks" forum! And now I am reading the same thing! HaHa. By the way where did you learn how to trade?[/QUOTE] Loosing a small fortune in the nineties got me more, how should I say?...SAVY! My best lessons where my mistakes. Now I try to anticipate future yet unknown mistakes. Right or wrong...that why I like talking to you gys and gals. Contructive give and take is helpful. I gotta admit, that nut job Jim Cramer got me re-interested. Homework is a consrtuctive common sense technique for investing. I was reading his book by the pool the other day and it's like putting on new glasses and seeing for the first time. Knowledge is power...anticpating 6 months ahead when "the street" is rallying on a different page is a difficult discipline to maintain. I can now see where things like tech are going, while some market people of TV still try to sell their view. I can now see cyclicals in the slow whirlpool down, while seculars are ripe on the vine. It's just a matter of 2006 criteria. I see any rising cyclicals today as clinging to hope in the 11th hour. I had JNJ for more than a decade in the 80's and made a fortune. Look at the chart and see what a secular market can do for such a stock. GE too...look at their max charts on YAHOO. Look at HNZ...CLX...etc."

Harry said: "[QUOTE=natser]LOL Herry. I just gave the same advice on the " Where can you find good inexpensive stocks?" section in "the Let's Talk Stocks" forum! And now I am reading the same thing! HaHa. By the way where did you learn how to trade?[/QUOTE] Weird...we both posted at forum time 9:09am from opposite coasts! :eek:"

RupertB said: "The [I]price[/I] of a stock has nothing to do with the [I]value[/I] of a stock. IMO, until an investor has figured out why this is & what metrics [I]do[/I] tell you a stock's value, he or she has no business investing in individual equities."

trickynick said: "[QUOTE=Darren] It's rare when you find a forum where someone will tell you the truth: [B]share price is the STUPIDEST criteria of all to base a buying decision on.[/b][/QUOTE] Yes. I think part of the problem is that while share price is a largely irrelevant piece of data about a stock it is definitely the most widely tracked and to someone who is new to all this that creates the impression that it is more important than it really is. [QUOTE=naster]Imagine 10% profit on the stock that cost $2.50, its only .25 and now imagine 10% on the stock that cost $25.00 its $2.50. That is the number one reason the poeple like to trade chaper stocks.[/quote] That logic would make sense if there were evidence that a $2.50 stock is more likely to go up $0.25 than a $25 stock is to go up $2.50. I don't know that such evidence exists. A better indicator of that would be the number of shares outstanding and the average daily volume the stock trades on. If those numbers are both really low than the stock is said to have a "thin capitalization" and under those conditions it is definitely true that it doesn't take much buying pressure to send the stock soaring. The problem though is that this phenomenon cuts both ways, it can go plummeting just as easily if selling pressure sets in. Let's face it, if the lower the share price the more likely we were to make a profit why would anyone be buying anything but penny stocks? And if everyone did that then there would not be any penny stocks because there would be sufficient support to keep stocks from getting low enough to become penny stocks. Obviously, for the market to behave this way would make absolutely no sense so we must logically conclude that there are many other factors influencing the market much more meaningfully than share price so we should not pay too much attention to share price."

gujubd said: "Wow, I can openly admit that I am one of the newbies who thought the share price was one of the most impt factors in determining a stock purchase. Ofcourse, there are many other factors that are far more impt than the share price, and I have learned that after reading many of the posts by the admired experts in this forum. I look forward to learning more about investing strategy, and if anyone here has any helpful websites I can look into, i'd greatly appreciate it. Knowledge is power!"

natser said: "Accually I personally got much more resualt in cheap stocks that cost anywhere from $1.00 to $4.00 then on stock that are $15.00 or more. Most of the time when I buy cheap stock it ussally takes them from 2-4 days to get me at least 10% in profit back and the expensive stocks might take longer."

Harry said: "[QUOTE=natser]Accually I personally got much more resualt in cheap stocks that cost anywhere from $1.00 to $4.00 then on stock that are $15.00 or more. Most of the time when I buy cheap stock it ussally takes them from 2-4 days to get me at least 10% in profit back and the expensive stocks might take longer.[/QUOTE] My perception on this topic is that more money can be made from small caps merely from the volume of shares that can be afforded. Big money can be made or lost from market knee jerks from the masses who invest. On the other hand while I mad the most money of mid and large cap stocks. Growth by percentage was increamentally small, but more of a sure thing. My choice...small caps > bigger potential > more volitle Mid-Large Caps > small gains but more certain gains. Diversification should cover the whole gambit."

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