Cheap Stocks stay Cheap Stocks – Part Two

Ok – I wasn’t going to bother with this but my last cheap stock post generated a comment that I at first didn’t wish to argue but I think that I need to say something. First I don’t “assume” – I’m sure you know that when you “assume” you make and ass of you and me and I do not care to be in that calculus.

In the near term cheap stocks remain cheap. In the long term sometimes a cheap stock actually does something spectacular.

One problem – there is no way of determining the true market value for most cheap stock companies. Another problem that I consider even worse - many cheap stock companies were at one time expensive stocks (see MAMA and MVIS) that have fallen on hard times. Most stocks that fall on hard times seldom make it up the ladder again (and I’m not going the list the several hundreds in this category - you know them well). However, I will add that both MAMA and MVIS show some promising growth on the monthly charts coupled with rising volume so it is possible that they can go up more and may even become “home run stocks.” May.

I am not a long-term investor and I don’t think that my posts regarding day trading and day trading set-ups ever indicated that I am. The longest time I ever hold a stock is about 4 days. If visiting relatives and fish start to stink after 3 days - I believe that stocks absolutely reek after 4. And you can quote me on that. That is also my principal bias - short term trading.

Still I can justify my statement – Cheap stocks stay cheap – with a simple filter.

I looked for all stocks in the universe of those selling for $20 or more today that were selling for less than $10 and more than $1 one-year ago. I came up with 14 out of the 2384 that fit the constraint. Then I looked for all stocks in the universe of those selling for $40 or more today that were selling for less than $30 and more than $15 one-year ago. I came up with 76 out of the 2362 that fit the constraint. (I used 15 – 30 to make the starting batch about the same 2384 – 2362). Bottom line – 14 cheap stocks have been going up during a nearly year long bull market and 76 intermediate priced stocks went up during the same period.

Now I’m not going to say that I would have been able to pick those 14 stocks or these 76 stocks out of the over 4700 stocks involved in the test. All that I am saying is that it seems that the odds are a little better outside the universe of Cheap Stocks to find stocks going up significantly. Of course good TA would have picked up all 90 of those stocks since they leave nice trails behind them. The problem is good TA would have picked up several thousand others that didn’t go up significantly over the past year. TA is like that you know.

So let’s leave at this – I won’t play cheap stocks except for quick scalps on a day trade basis and I’ll be happy. You, of course, can play what you please. But don’t insult me by saying I “assume” since the only thing I “assert” is that nobody knows nothing. (And the universe of “nobody” includes, of course, you and me).