I can’t help but think of Bob Barker, the game show legend, when I hear a stock market discussion centered on a stock’s price. I remember him from his Truth or Consequences television show days, well before his huge Price Is Right success.
As an analyst recommending securities, I’d sometimes be asked if I had anything cheaper to suggest because the price of the stock in question seemed high. You’d think I was selling goods from a cart on a street corner. My response to that unfortunate question is that stocks should be bought or sold based on their potential, not their price. True, psychologically speaking, it seems much more advisable to buy 1,000 shares of a $9 stock than 100 shares of a $90 stock. But what would you rather have: a $90 security that you own that goes up or that $9 stock you have that goes down?
Refusing to consider a stock purchase because of its price should not be part of your investment strategy. By doing this, you may be omitting a potentially large winner from your portfolio. As a kid, I remember not buying a “high-priced” priced stock because I could purchase only a very small quantity, only to see the shares skyrocket thereafter. It was called Teledyne. That experience instantly cured me of that investment affliction. Think of it like this: when you calculate your investment results each year, do you care in the least whether the money you made or lost was in higher or lower-priced shares? C’mon.
Using price as a category to screen for purchase or sale candidates is one that should not be used any more than you would employ zodiac signs, hair color, or height as a reason to date someone. Are these among the vital statistics that lead to choosing a lifelong mate? Why exclude a group of potential winners from either group by using such narrowly based measures? You could be missing out on a real opportunity, especially when it comes to relationships.
Being a technical analyst, I base my analysis of a stock or market on its potential—irrespective of price. In fact, a lower-priced stock may actually have more technical risk than the higher-priced stock based on an analysis of the price graphs. Take a look at a list of seemingly high-priced securities, and you’ll notice that they probably seemed high-priced on many other occasions along their northerly routes. The same applies to stocks that may appear low in price but continue to trend lower. This is particularly true in bear markets where the “cheap get cheaper,” as the saying goes.
(To be continued...)
This excerpt is taken from “Relationship Investing: Stock Market Therapy for Your Money” by Jeffrey S. Weiss. To read other articles of this book, click here. To buy this book, click here.
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