Cheap Isn’t Always Best

I thought I was a pretty good investor. I’ve always done well with stocks that I’ve researched. But last year I listened to my neighbor and a guy I met at the races. The stocks they recommended were CHEAP, so I bought 500,000 shares of one and 200,000 shares of the other, and lost more than 80 percent of my investment. I learned to stay with what I do best. I do all my homework on The Motley Fool and Scottrade Web sites. To date with these two tools (even during the market’s fall), I am up over 25 percent on my total portfolio.

— R.F. Hass, Houston

The Fool Responds: Those must have been penny stocks, notorious for being volatile. They often end up hyped up by some profiteer before they crash. Investors are often lured by the idea of owning, say, 500,000 shares, and they may think that a 2-cent share is so cheap that it can only go up. Wrong — it can become a 1-cent stock, or worse. Remember that a $200 stock can still be cheap and can double. Avoid those pennies. 

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