Stocks For Less Than A Buck?

By Douglas Rice | June 01, 2009 AAA
Stocks For Less Than A Buck?

There are quite a few companies that have very low stock prices right now, and almost everyone who has ever bought a stock at one point has thought about the tremendous percentage gains that can be had from stocks that trade around $1 a share. If it just goes up a dime, that's a 10% rally - a quarter would generate a whopping 25% gain. The comparison to a savings account staggers the mind. But there's a reason they trade at those low prices – they are extremely risky. This is why they are often called "taking a flier." (Find out how your personality and natural instincts can direct your investment choices in Investors: Rely On Your Gut.)

Taking a flier, or speculating on a high-risk investment that may go totally bust, isn't for the average investor. Those that seek this thrill aren't really investors at all. Rather they are traders and speculators looking for a quick profit. They move in and out of this stock on a moment's notice, often trading on nothing but momentum.

There is nothing wrong with speculation. Without it, the markets would function as speculators provide the liquidity to allow investors to buy or sell easily, as there is always someone willing to make a bid or offer for your shares. They also provide the day-to-day pricing changes that allow the market prices to reflect current information. But speculation, by definition, is very risky, and so speculation isn't for everyone. (Read on to learn how to build a portfolio that will grow with you in Portfolio Management For The Under-30 Crowd.)

Those that speculate are different than the average investor. They aren't saving for their retirement or a college education; they aren't putting money at risk that they can't lose, and they know the odds on their ultimate success are best described as a lottery ticket. If you feel that this needs to be part of your life, that's fine - many people feel that way. But you wouldn't put your retirement in a lottery tickets, would you? So if you need the action, the thrill of a big payoff, a quick potential win, put some money aside that you can afford to lose, and take a flier.

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