Every new investor I have ever known – myself included – falls into the same trap: We tend to gravitate toward the penny and sub-penny stocks.
It’s natural to have visions of grandeur dancing in our heads of how we bought 10,000 shares of a $.01 stock that goes to $1.00.
Can it happen? Sure, anything is possible.
But is it likely? No. There’s a reason the stock price is a penny.
Most new investors would never think of buying a high-priced stock. When I say high-priced, I’m talking about stocks that are $100, $200, $500, even $1000 per share.
I know this was many years ago, but Berkshire Hathaway (NYSE: BRK.A) was once priced at $1000 per share. Today, it’s $300,000 per share. So as it turns out, that $1000 share price was a steal!
Most stocks that are priced that high are proven businesses – and, believe it or not, carry less risk than a stock priced at $1 or $2.
Let me give you an example.
Mercado Libre (NASDAQ: MELI) is “the Amazon and eBay of Latin America”. A few weeks ago, the stock was $368 per share.
The day after they reported earnings, the stock opened at $410 and closed at $448. You would have made 21% in one session.
A few days later, it traded as high as $512. This would have been a gain of 38% in less than a month!
Remember: when we buy stocks, the percentages we make are the same, whether the stock price is $1 or $1000.
Higher priced stocks very often offer higher returns and less risk than lower priced stocks.
So don’t be afraid to buy high – and sell higher!
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