Of course you know, I fully disagree with you. Price has nothing to do with value(what ever that is, I have never seen it measured) . Liquidity is not a small price issue. Suggest you do a study on all stocks with a 150,000 shares or more average for last 6 months.
I have not done a serious study of low priced stocks. However, I have seen too many charts of low priced and small cap issues to see that these charts do not behave in the same way as higher priced and more liquid stocks. So it has been my personal experience that the trading action on small priced stocks is generally markedly different than that of higher priced stocks. I find them price patterns of more "illiquid" stocks, or I find taht these penny stocks do not go anywhere. Still, I am sure there are many charts out therre that I have not seen which can be different.
I also think that low priced stocks are psychologically different to the trader. No matter if these are just numbers on a paper, people tend to plave value on those figures. I see it as human nature to look at stock prices or anything else involving money this way. IMO it takes an objective and discaplined trader to see this differently. What value does a person place on a $3 stock? IMO not much. That is why many players are there to begin with. This type of stocks attract the people who see the stock as being "cheap" and they can afford to buy allot of shares compared with higher priced stocks, which they (implicitly) think that they also can afford to lose. IMO low priced stocks attract the gambler and others who are less experienced because this stock is accessible and "cheap". The perception is that there is not muchmoneey to lose. Also, how much farther can a $5 stock do down? Or so they think to themselves.
I find much of the time the thinking by those who play this type of stock goes: "Heck, this stock is *cheap*. Here American Motors just brought in a new President to turn the company around. The stock is right now at $5 per share. All the stock would need to do is go up $1 for me to profit. What is one dollar?? Not much. This should be no problem". The more serious players I have found to consider themselves fortunate when 1 out of 8 that they have invested in makes them money. I have spoken to many low priced stock traders with this frame of mind. With odds like this, IMO this is gambling for them. And with only the "25 cent" requirement to participate, many gambler types will be attracted to stocks like this. This will reflect in the price action of the stock.
Now with the scanning capabilities of my software, perhaps it will be worth pursuing a study like this that my software makes possible.
So what do you think about what I said here, Richard?
Bob Graham |
