Don't Buy Cheap Stocks

OK everybody. Today, I am going to start setting up my stock market investing system according to William O'Neil's CANSLIM strategy and rule #1 is don't buy cheap stocks. Many people look for cheap stocks to buy because they are smaller investors with smaller investment funds. Don't let this be you. With every stock purchase you make, you have a risk of loss. Stocks priced under $15 dollars are even more volatile. While it might seem logical that stocks that are cheaper might have an easier time going up in price, history is working against you -- and so are Wall Street speculators.

You see, you are not the only one looking for cheap stocks to buy. So are the speculators. People with a lot more money than you. They know that they can affect the price of a stock trading at a lower price. They start buying it and from their demand alone raise the price. Then they start advertising it hoping people like you and me start buying it when they start unloading it. Once they are out and we are all in, there is no demand for the stock and the price falls. In the end, you and I get screwed. I believe that this happens at all a levels of stock to some degree and it's why stockbrokers recommend poor stocks to their clients. They are told it's a good deal while it's being secretly unloaded by the same company. Why just the other day I wrote about Macy's being one of the top 20 candidates to file bankruptcy in the next twelve months. On the same day, it was listed as a BUY. Why? Your guess is as good as mine and that is why I think the market is being manipulated by a lot of different people.

The other thing working against you when buy cheap stock is that the stock is cheap for a reason. It's fundamentally a poor performer. Why buy stocks like that when there are more quality stocks to choose from? Because the risk of loss is so great with common stocks, you've got to choose the best stocks to buy now instead of looking for cheap stocks to buy now. It's a myth that cheap stocks can double easier and it's less likely.

OK. So, we know now we shouldn't buy cheap stocks. What should we look for. O'Neil says that we should look for stocks priced between $15 and $300 on the NASDAQ and stocks priced between $20-$300 on the NYSE. His research and experience has taught him that most of the histories market winners broke out above $30. He also says to avoid any stock under $10.