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Stocks are Cheap for a Reason

Sometimes things are cheap for a reason.  Whether it be because of poor quality or the item no longer has value, you get what you pay for.

The same can be said about stocks.  Some stocks are cheap for a reason.  Until you break this mentality of buying on the cheap, you might struggle investing in the stock market.

I comprehend the comparisons people make between the stock market to the grocery and retail stores.  Who wouldn’t want to buy a t-shirt on sale or get a loaf of bread for half price?  However, stocks are not luxury items or perishable goods so they shouldn’t be treated this way.  (Reader tip: be sure to check the expiry date of that half priced bread next time you’re in the store – it might be expired!)

Unlike food and clothing, stocks have valuation and earnings attached to them which correlates to value.  If a company isn’t growing or doesn’t make any money but is cheap, why would you want to own them?  Price is the only thing that pays in the stock market so as a stock gets more expensive relative to price you make more money.  Isn’t making money the reason you invest?

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Investing in more expensive stocks could pay off for you in the long run.  Lets have a look at Google.  The stock is currently priced around $900 a share.  However, the stock is priced there because the company is constantly growing and expanding into new markets.  The company is expensive and worth billions of dollars because everyone who uses a computer or smart phone has used Google to search, get directions or watch a YouTube video, which is owned by Google.  The price of Google has escalated from $106 to $300 to $350 to $600 and now up to $900.  By thinking the stock is too expensive based on price and not investing, people are missing out.  Google has produced astronomical returns for its investors because it keeps getting more expensive!  That penny stock your co-worker told you about at the water cooler, well, it’s probably still a penny stock.

I often compare investing to sports.  In order to win a Super Bowl an NFL teams needs to have good players on the squad.  It is imperative a team has a top quality quarterback to win games.  Players like Tom Brady, Arron Rodgers, Ben Roethlisberger and Eli Manning are expensive to keep on the roster but are also key components that help win championships.  I’m sure the owners could pick up some third stringer for a bag of footballs but if the New England Patriots or New York Giants had cheap quarterbacks, how many  titles do you think they’d have?

Having a way to find top performing stocks will help separate you from the pack.  Stocks becoming more expensive by making 52 week highs often break key resistive price levels and can keep increasing in price for months.  To find these stocks to boost your portfolio visit the NASDAQ website.  Keep in mind you should never chase stocks when they run up but rather buy a stock that is increasing in value when it pulls pack.

There are many ways to make money in the stock market but buying stocks that are going up in price is definitely the best way to increase your equity.  If a stock is cheap, it’s probably cheap for a reason.

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