It helps to have allies. In stock market investing, institutional investors can be your friends.
Managers of mutual and pension funds have billions of dollars at their disposal. They sink that cash into stocks they deem worthy. Buddy up with them by investing in the same kinds of stocks they do.You won't find many managers in cheap stocks. Why? They know that you get what you pay for. A $2 stock trades at that level for a reason. Usually earnings and sales are lackluster.
About 3,000 stocks trade below $15. Their average Earnings Per Share Rating is a lowly 14. That's way below the 80 EPS you want for stocks you buy.
You might hear a lot of hype about some low-priced stocks. Their business is going to be great for this or that reason, you're told. Too often these stocks ride more on promise than performance. When the sizzle fizzles, they don't have much of a foundation and fall fast.
Most big winners start their runs trading between 25 and 50. More of them have solid earnings and sales records -- proof that they can deliver the goods. They also have a more promising future.
You might think it's easier for a stock to go from 2 to 4 a share than 30 to 60. But they're both doubles, and the gain is more likely to stick with a stock of substance.
Plus, don't be fooled into thinking that cheap stocks can't or don't fall as much as high-priced stocks. In reality, the distance between 2 and 1 is the same as 50 and 25.
And don't be lured by the false benefit of more shares. Sure, $10,000 will buy 5,000 shares of a $2 stock. But that number of shares isn't worth any more than owning 200 shares of a $50 stock.Because of higher quality, you have a better chance of cashing in with a higher-priced stock.