Buying Cheap
It is common in the share market for investors to buy a stock simply because it is falling in value and considered cheap. Cheap implies that you will get a bargain, which maybe the case when you shop at the supermarket but this mindset is not the best strategy to adopt when investing in the share market. You want to buy quality not quantity simply because this is where you will generally find the greatest gains.
Many people buy stocks because they perceive them as cheap, but just what do we mean by cheap? Is a stock that is falling in value cheap? Maybe, provided it doesn’t continue to fall once you purchase it. Is a stock trading under $5.00 cheap? Cheap in comparison to what? Is a stock that is trading under a $1.00 good value? Possibly although many of these stocks are referred to as ‘penny dreadful’ stocks and for good reason.
It is not how many shares you own that counts - owning a $0.10 share means you will hold more shares than if you bought a good quality blue chip share at $10.00. But the blue chip stock has more potential to make a 10 per cent gain than the $0.10 stock and is probably far less likely to fall dramatically in price. Either way a 10 per cent rise in either stock will net the same result.
While the price of a share may be considered ‘cheap’, in my experience, when investors buy cheap stocks trying to get a ‘good buy’, they usually end up saying ‘good bye’ to their money.
So what can we expect in the market?
Over the past few days the All Ordinaries has risen, which is in contrast to the Dow that until last night had been falling over the past week. This display of resilience and strength on our market may signal an end to the current weakness in the All Ordinaries Index that we have experienced since 15 June.
If this is correct then prices will continue to rise for the next 3 to 5 weeks to reach the yearly high I have been expecting. While I believe the yearly high will occur in the last week of July, we need to be aware that it could occur at any time, with the possibility that it may also occur in early August. I still believe the market will rise to between 4200 and 4600 by late July, however, given that the recent move down was longer than expected in price, it is more likely that the lower end of my target will be achieved.
Dale Gillham
Chief Analyst
Wealth Within
Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.
For more information please visit www.wealthwithin.com.au
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