Can you buy Sub-$15 Stocks?

The simple answer is yes. Some publications suggest that buying stocks less than $12 or $15 is very risky. This is true but it’s not as risky if simple investing rules are implemented such as cutting losses quickly. (Note – I will pound this one rule into your head as long as I run this community – cutting losses quickly is the single most important rule to successful investing).

William O’Neil and IBD recommend buying stocks above the $12-$15 threshold. I also recommend this to novice investors as higher priced stocks usually don’t have the extreme volatility that some lesser priced stocks have, due to smaller floats. Personally, I am comfortable in my philosophy and have strict rules in buying and selling all types of stocks at all price levels so I feel that I can take on the added risk.

If you read MSW closely, you will notice that many sub $15 stocks are highlighted on daily screens, weekly screens and case studies. Even IBD will include sub $15 stocks in their charts, sector highlights and New America articles. Buying stocks under $15 does present higher risk but a closer study into our screens will reveal that a solid chunk of our All-Stars have started their triple digit up-trends when they were still below $15. A closer look at the IBD 100 will also reveal that a good portion of these stocks broke out while they were still under the $15 threshold.

You must do what is most comfortable for you. When I first started teaching this philosophy on the internet, I told new investors to stay above $12 and I still believe that this is good advice. As a novice investor becomes more experienced and has endured a few losses and cut a few losers quickly, they can start to take on positions with more risk. I don’t advocate buying stocks under $5-$6 except in very specific cases.

If you go back and study the weekly screens, you will notice that 7 of the top 10 MSW All-Star stocks of 2004 started their runs below the $15 threshold. I highlighted these stocks on weekly screen over and over as they advanced from these sub-$15 levels. (2004: ALDN, NGPS, ELOS, DHB, ESMC, TRGL, DCAI).

As your investing experience grows and you start to review past trades, only you will be able to determine if sub $15 stocks are right for your portfolio.

Piranha