Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Monday, February 28, 2005

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

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