With over 80% of businesses today classified as small to medium sized, investing in cheap stocks might just be your best bet in this gambling game. The year 2009 had a lot to teach the novice investor in that it was quite a roller coaster ride. January and February emulated the slow but steady climb to the the highest peek before it plunged into the crash of March. The rest of the year had a likeness to the rest of the ride. It produced less dramatic inclines and declines as the year came to an end. Today’s stock market is not for the timid unless you are willing to take small steps toward their goal. These small steps should be represented by cheaper stocks.
Cheap stocks are stocks that have small caps; meaning smaller capitalization. Smaller market cap is a measure of the shares outstanding multiplied by the price per share. In other words, it is the total value of all of the stocks that are offered added up together. It is a measurement of what the street thinks the market is worth.
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If you find smaller cap stocks that have good financials, it’s possible you can recognize companies that are sold for pennies on the dollar. This strategy would be known as value investing. These stocks are cheap and affordable, and represent great value if you are willing to wait.
Smaller capitalization is relative to the times in which we live. Nowadays small cap businesses are those that have a net worth of less than 1 billion. Some might even say less than a couple of million depending on the expert. These types of stock usually run less than $5-$10 a share. It is a good idea to build a portfolio of cheap small cap value stocks that fluctuate a point or two per day. Knowing which companies are fluctuating at this rate requires watching the market for a few weeks or even months to determine the pattern. Following this rule minimizes huge losses.
There are many online newsletters and other forms of advice to take what you need and give the rest back. Standard and Poors’index is one of the most widely used resources for gauging performance. One may even decide on mutual funds which allows you to spread your money across a spectrum of cheap financial stocks. It was the big stocks that took the biggest plunge in 2009. It was the inexpensive stocks that performed the best.
In 2010 the savvy investor is going to take more calculated risks with the cheapest stocks even if they previously invested in big caps. When determining exactly which ones to buy, one could look at lists all day before making a decision. The top ten and twenty lists vary that greatly. It is best to look at your individual needs first. Is a short term return needed or will long term suffice? One of the cheapest forms of stock in terms of dollars per share are penny stocks.
Penny stocks have the magnetic allure of cheap stocks that should have two words attached. Those words are caveat emptor, which is a Latin legal phrase for LET THE BUYER BEWARE. These inexpensive stocks have very high risk factors and should be handled exclusively by high rollers. There are too many scams and cases of fraud for the novice to fall victim to.
Companies that offer cheap stocks warrants investigating. It is a good idea to look at the company’s background and stability before purchasing shares. If a company did well one year and not so well the next it may be an indication that you should move on to the next choice. If the company is steadily growing its value will grant dividends for future investments and a portfolio one can be proud of. You want stocks that are traded at a good value relative to it’s market cap. It should be fundamentally cheap as this represents great value in cheap stocks.