Cheap vs Expensive Stock Debate
Leaders vs Losers
You are given $1,000 to invest, and you are given only two options :
Option A. 1 Share of a $1,000 name like Amazon
Option B. 1,000 shares of Dog Shit Inc for $1 a share
Now they both increase by 10%, which made more money? A or B?
The answer is they both increased the same.
1 share of $1,000 share of Amazon stock increased by 10% is now worth $1,100
1000 shares of Dog Shit Inc. increased by 10% is now worth $1,100
More share does not equal more profits, only more money will equal more profits, but wait? You might be thinking if it's the same shit then why does the price even matter at all? Great question!
Let's frame this question again however let's focus on the downside which is what most novice traders never worry about until after they click the button for the first time (first trade with real money). Before that first trade, most tend to be the cockiest guy around, maybe he had a few killer demo trades or he read a chapter of “Getting Back to Even” by Jim Cramer. Once they are in, they quickly start to see that red on the screen and quickly that confidence gets humbled.
So let's reframe that question again: Which is more than likely to get cut in half in 1 day?
$1,000 a share Amazon that is worth $500 Billion
$1 a share Dog Shit Inc worth $1 million
Dog Shit Inc right? Fun fact, in the history of the Dow Jones Names (top 30 companies in the USA) only one has gone bankrupt in 100 years while being a Dow 30 name. Want to guess how many Dog Shit Incs have gone bankrupt in that span? Hundreds of thousands. You can play with the suckers at the slot machines or trade with the professionals, choice is yours.
Do you have balls?
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