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Beware Low Priced Stocks

September 21, 2010 – Comments (0)

There is something about a stock that trades in the single digits that gets the speculative juices flowing. I know this first hand since I have been guilty of doing this in the past. A lot of people have dreams of picking up a stock for a few bucks a share and watching it soar 200x to become the next Microsoft. This is the stuff that stock market dreams are made of.

Boulevard of Broken Dreams

Unfortunately, reality plays out differently a vast majority of the time. You don’t hear too many stories about the guy who bought that $4 stock and watched it fall to $0 as it was discovered to be a fraud or went belly up. This is a much more likely scenario than watching it becoming a ten bagger. The point is that these stocks are in the single digits for a reason.

It is unlikely that you will find a low-priced stock that is benefiting from excellent fundamentals. For one reason or the other, the market is skeptical about the future growth prospects or earning power of the company; either that or there is some other cloud hanging over the company that is difficult to lift.

Big Boys Stay Away

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