It has definitely been an extremely bumpy ride so far when it comes to the stock market this year. Multiple things have contributed to this, the main one being Coronavirus, but there was also, the oil price plummeted over 30%.
So, basically, the stock market has already crashed, and then actually recovered multiple times, whenever a glimmer of good news was broadcasted, such as the death rate stabilizing or that lockdown restrictions were easing.
All of that being said, if you are an investor, or a beginner looking to start investing, it’s necessary to mold regular investing strategies and opt for the ones more adapted to our current situation. One of these strategies is investing in inexpensive stocks, and in this article, we are going to cover why it is so.
First things first
Before diving into reasons for opting for inexpensive stocks, let’s first talk about them a bit. It’s important to do so first, in order to gain a better understanding of what pros and cons come with them so that we are going to be able to apply the knowledge about inexpensive stocks to the current situation.
Not all inexpensive stocks are inexpensive for the same reasons!
In order to identify a valuable stock, you should compare its price with its fundamental factors and buy only when you believe you are getting value for money. Basically, the most commonly used ways to determine these are price/book value (PBV) and price/earnings per share (PE). So, if these multiples happen to be lower, you should buy the stock. However, this principle may not always work to your advantage, since not all cheap stocks have the same potential – so be careful!
Some of the cheap stocks might bring you a lot of money!
On the other hand, by being careful, you could get a pretty sweet deal by buying a cheap stock. And there are some extremely cheap stocks to buy right now, and if you want to find the best stocks under 5 dollars, you can do so! And on what we have to say about the potential of buying cheap stocks – when Baron Rothschild was asked how he had amassed such an enormous fortune from the stock market, he actually replied, “I buy sheep and sell deer.”
Coronavirus and its impact
As we have said earlier, Coronavirus has left the stock market shaking, and while this is problematic right now, there, as always, are loopholes that can ultimately help you profit. Basically, consider the fact that stock values are plummeting – and while this is obviously a problem if you own the stock, buying an inexpensive stock right now is a great opportunity if it happens to bounce back to its original value soon enough. Sure, the unpredictability is a risk factor, but you can definitely end up profiting.
The general unpredictability
Even though we have already talked about unpredictability when we were discussing Coronavirus, let’s address it a bit more, but in more general terms. The thing is – the stock market can be extremely unpredictable, you never know when something can pop out right out of the blue. For those experienced in the stock market, these changes come more easily since they are aware of the most prominent possibilities, and they know the hows and whys.
On the other hand, if you are a beginner, and you are not sure how to navigate the market, the worst thing that you could do is just spending a big amount on a stock about which you aren’t even sure how to predict its growth. Starting small is a great way for you to build up experience on how the market works, giving you the necessary knowledge that you can use for bigger investments down the road.
Something bigger might be hiding behind an inexpensive stock
Now, the thing with inexpensive stocks is that they can be, in most cases one of three different scenarios. The first one is that the company that the inexpensive stock is referring to is basically near bankruptcy, in which case, it’s understandable that it’s cheap, and you shouldn’t buy it.
The second scenario is that the company is at its beginning, and in this case, it’s risk or reward – the stock value might rise, might not, but it’s worth the risk if the price isn’t that high. And the last scenario is that the value has fallen due to the market value as a whole, and in this case – you have the opportunity to gain from it down the road, by paying a lower amount of money.
In the end, it isn’t all that easy to predict the right steps when it comes to investing right now. The best tactic so far is to take it easy and responsibly, do all the necessary research, and understand that things could turn around in any way pretty quickly. There are some big stocks that are worth investing in, even now, but if you want to be safe and ensure that you aren’t going to have some major losses – it’s best to opt for inexpensive stocks.
