Posted on 14 April 2012.
A solid portfolio should contain a variety of investments, including low price stocks and higher-value holdings. When people experience a disastrous loss in their portfolio, it is often due to a failure to diversify their portfolio. They may have foolishly put all of their money into one stock because they believed that it could out earn any other. Alternatively, they may have been attracted to high-priced stocks and failed to consider the possibility that the large, successful companies behind them might fail.
There is a hidden and unexpected earning power in low price stocks. While other stocks have big price tags, they also often suffer from the inability to create returns rapidly. These investments are safe and conservative. However, if you want your stocks to generate income quickly, low price stocks have much more potential.
The reason for this is simply mathematical. If you put $50,000 into a $500 stock, you end up with just 100 shares. If that stock increases it value by as much as a dollar, you only earn $100. Now imagine sinking that same stake into a stock valued at just $5 per share. You now own 10,000 shares of that stock. The same value increase in that stock would net you $10,000.
There are many kinds of low price stocks. You can find some of them among the small cap offerings on the NYSE and the NASDAQ. You can also look for them in the over-the-counter (OTC) market or in the Pink Sheets.
Many low price stocks are penny stocks. These stocks are often worth just pennies per share. Some are even worth less than a penny. While this may seem unsettling, you should remember that the earning potential of low price stocks is inversely proportional to their value.
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