Far be it from us to demonstrate the unmitigated gall to presume to update one of King Solomon’s Proverbs – oh, what the heck, we’ll go ahead and do it. The problem is not that his ideas are outdated but rather that language has changed so much, and the attention span of the average American has regressed to that of a fruit fly, that we’re afraid some of the good king’s wisdom isn’t getting through any more. Like it or not, the message has been obfuscated by language.
So here we go. King Solomon’s New and Improved Proverb #1. We call this one, “You get what you pay for.”
A good example is penny stocks which, in our eyes, is almost synonymous with buying lottery tickets or taking a red-eye to Las Vegas to play the slots. Actually, now that we think about it, at least Vegas gives you free drinks and a dinner buffett. These days, too many investors, like the pitiful lottery players, are looking for the quick score. They latch onto a company with no track record, no profitable sales, and only a few poetic press releases to guide them. For $700 you can buy 10,000 shares and then it’s off to the races, eagerly checking the price each day, betting it will flinch upwards a dollar at some point so you can dump them and pocket a cool ten grand.
Earth to investor. Come in please. You get what you pay for. If you buy for a crap stock, you get crap returns. Maybe some day that company will be soaring with the Blue Chips of the world but, for now, there’s a reason you can buy a share for thirty-three cents – nobody wants it!
What often goes unconsidered by the investor in his headlong rush to be the next penny stock millionaire, is a little thing called volume. We can almost guarantee that, even if your pauper stock spikes up a little throughout the course of a day, it will be impossible for you to dump your shares all at once and start adding up your profit. Unless it’s a very, very rare situation, nobody in their right mind wants to buy 10,000 shares of that stock all at once at any price. Sure, you’ll sell the shares. Eventually. Bids will nibble at it from below while transaction fees eat into any profit you might have realized.
King Solomon says, “This is bad strategy and you DO get what you pay for.”
The Solomon Success Team
Flickr / Dan4th
