Simply put, you get what you pay for.
Its just like buying a cheap car; you can't get a new Corvette for the price of a beat up wagon.
When a stock is cheap, it is cheap for a reason.
You are not getting a discount.
If the stock was a strong, high quality stock that is in demand, then don't you think everybody else would buy it and therefore increase its price? There are only a few unique situations in which a cheap stock is actually a discount, and that is after a bear market when everything has taken a big hit (but even still, just because the stock performed well in previous years does not mean it will do well again in the future) and when a well performing stock goes through a normal correction during base building stages.
Think of building your portfolio as you would build a sports team: would you want to build a sports team full of the cheapest, lowest quality players you can find? Or would you want to build a sports team full of the more expensive, but high quality players capable of actually winning? The answer is obvious, right? I hope so.
You aren't going to beat the market with cheap stocks, just like you aren't going to beat a Corvette with a wagon; invest wisely.
Another point to consider: with wall street firms being responsible for the majority of trading volume on any given day, keep in mind that the pros will not invest in cheap or inexpensive stocks.
So don't get all excited about a $5 stock -- stay away if you are serious about investing.
All of the institutions with billions of dollars are not going to put all that money into cheap, low quality stocks.
Also, make sure your stock has a decent amount of daily trading volume (at least 300,000 -- 500,000 shares traded per day).
If your stock has a low amount of daily volume, then a single hit on the stock can wipe it out.
Think of it this way: if a million people own a stock and one person sells, then it will have no effect.
However, if only 5 people own a stock and one person sells then that is a HUGE deal.
This of course is an extreme example, but the point is still clear - if not enough people trade a certain stock then a single hit can wipe you out.
The opposite is also something to think about, if a stock has 50 million shares traded per day then there is way too many shares going around and it will be hard to see a healthy price increase due to supply and demand.
If there is plenty of supply floating around then the demand can't grow too strong.
Its just like buying a cheap car; you can't get a new Corvette for the price of a beat up wagon.
When a stock is cheap, it is cheap for a reason.
You are not getting a discount.
If the stock was a strong, high quality stock that is in demand, then don't you think everybody else would buy it and therefore increase its price? There are only a few unique situations in which a cheap stock is actually a discount, and that is after a bear market when everything has taken a big hit (but even still, just because the stock performed well in previous years does not mean it will do well again in the future) and when a well performing stock goes through a normal correction during base building stages.
Think of building your portfolio as you would build a sports team: would you want to build a sports team full of the cheapest, lowest quality players you can find? Or would you want to build a sports team full of the more expensive, but high quality players capable of actually winning? The answer is obvious, right? I hope so.
You aren't going to beat the market with cheap stocks, just like you aren't going to beat a Corvette with a wagon; invest wisely.
Another point to consider: with wall street firms being responsible for the majority of trading volume on any given day, keep in mind that the pros will not invest in cheap or inexpensive stocks.
So don't get all excited about a $5 stock -- stay away if you are serious about investing.
All of the institutions with billions of dollars are not going to put all that money into cheap, low quality stocks.
Also, make sure your stock has a decent amount of daily trading volume (at least 300,000 -- 500,000 shares traded per day).
If your stock has a low amount of daily volume, then a single hit on the stock can wipe it out.
Think of it this way: if a million people own a stock and one person sells, then it will have no effect.
However, if only 5 people own a stock and one person sells then that is a HUGE deal.
This of course is an extreme example, but the point is still clear - if not enough people trade a certain stock then a single hit can wipe you out.
The opposite is also something to think about, if a stock has 50 million shares traded per day then there is way too many shares going around and it will be hard to see a healthy price increase due to supply and demand.
If there is plenty of supply floating around then the demand can't grow too strong.
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