| Moderated By: BlueCheap -- (Not Moderated) -- Started: 9/2/1997 1:54:00 PM Revision History |
Blue Cheap Stock TRADING
Blue Cheap Stocks is QUALITY stocks usually priced under $5 and
introduced to me by Bill Mathews and his monthly news letter " The Cheap
In the book, Bill Mathews wrote entitled "Winning Big With Bargain
Bill called his recommendations Blue Cheap Stocks, the reason was because these
considered to be QUALITY stocks selling at or near their 52 week low
price. Many times the reason these stocks were down in price was simply
lack of interest from investors and impatience, because the stock wasn't
moving, thus more selling than buying created the low price in the
stock. Sometimes bad numbers or some other negative factor may have set
the selling in motion, creating an unrealistically low priced stock.
My purpose in creating this thread was none other than to share an
INVESTING STRATEGY, which I learned from Bill Mathews. I hope he would approve
of the out-line I will use derived from my study of his strategy and
from my personal experience. It may closely line up with other
strategies, but because it will be presented by this Mississippi
Redneck, it will be VERY SIMPLE and easy understood. Maybe those who
pass this way will benefit from Bill Mathews and my personal experience.
Choosing a Brokerage:
Always remember your profits or loss (if any) will be affected by the
cost of COMMISSIONS. I personally do not need full service brokerages because
I choose which stocks I purchase by using The Cheap Investor, so I do not need
the advice of brokers. By using a discount brokerage to execute the trades for me
at a low commission cost, I increase my profits. EXAMPLE: one of two
brokerages I use is Union Planters Brokerage.
I most often use AmeriTrade, ameritrade.com , which is
$13 per trade FLAT RATE, regardless of the price of the stock or how many shares
you are purchasing of that stock. $13 per trade, that's it. They do require a
minimum trading balance be maintained which is $2,000.
Consider the NUMBER of shares you control to determine your profits
or loss: Trading this BLUE CHEAP strategy is quite simple, especially if you
are using someone like Bill Mathews which will be recommending these
QUALITY stocks at what is termed by many as the BOTTOM. The amount of
CASH you have to invest will determine the number of shares you can own, of
course. Which brings me to the very point of LOW priced Blue Cheap Stocks. Assume
you have only $10,000 to invest,
(many small investors will have even less, I started with less). Now you can
either purchase a $20 stock and own 500 shares or you can purchase a $1
stock and own 10,000 shares. If your $20 stock moves up (we hope any
stock we buy MOVES UP), say to $25, we have made a $5 profit or $2,500,
however if we would only need our $1.00 stock to increase by .25 cents
to realize the very same profit. Many of these undervalued Blue Cheap
Stocks increase 30, 40, 50, 100 percent or more as investor interest
comes into these stocks because of some GREAT news, thus creating
MOMENTUM BUYING. They also move up and down in greater percentage
swings MORE OFTEN than do the higher priced stocks. This creates more
opportunities=PROFITS. So ALWAYS consider the NUMBER of shares you OWN.
BUYING & SELLING:
Having already discussed the strategy of buying ONLY at or NEAR a stocks 52 week
LOW, we need to now know WHEN do WE SELL??
I have found two patterns which seem to hold true in MOST ALL stocks regardless
of price. They are, IF a stock RUNS up in price as much as 30, 50, 100 percent or
this stock WILL FALL BACK. Then at what point do we SELL to receive the
MOST PROFIT?? I have found that by NOT being GREEDY and setting a LIMIT
SELL ORDER at a NICE percent of return, I usually get near the top of a RUN. You
determine to either SELL all of your shares or hold a CORE position.
That will be determined by circumstances or special situations
surrounding a particular stock. If you feel you can sell ALL and buy it
back at a lower price you have accomplished THREE major things. (1) you
made a NICE PROFIT, which is the only reason I buy stocks. (2) You now have MORE
invest, back in this company or another. (3) Regardless if you buy this
stock or another you have a hedge against any losses. If one does NOT
set a LIMIT ORDER on some portion of the position then its very
possible to MISS a NICE PROFIT & an OPPORTUNITY. You may profit from a
stock and still MISS several opportunities to PROFIT from the RUN UP
because the stock FALLS back. After a RUN most stocks Fall back quicker
than they went up because of PROFIT TAKING which will produce PANIC
selling. I personally try to NEVER allow a PROFIT to slip away. Every
single time I have made the mistake of just HOLDING on because I
believed the stock would recover and TAKE OFF AGAIN, I found that the
stock just came right back down and I just LOST and OPPORTUNITY to take
a PROFIT, buy back and own MORE shares.
The other PATTERN is if a stock SLOWLY and methodically moves UP,
then you can continue to RAISE your LIMIT SELL ORDER. Most discount
brokerages will not handle STOP LOSS ORDERS, which is used about the
same way as I'm describing the use of LIMIT ORDERS. STOP LOSS orders
are placed to sell a stock if it backs off to a chosen price. However,
if you are VERY closely following the stocks trading you can of course
use your own MENTAL STOP LOSS and it is my opinion that you should use
this important strategy along with LIMIT ORDERS. It requires MUCH more
time and if you cannot follow your stock close then, simply SET a LIMIT
SELL ORDER just as soon as you have conformation that you own the
stock, then go ahead and go fishing or what ever, because if GREAT
news hits and the stock RUNS you will SELL. Don't ever condemn yourself
for selling for much return on your investment. It is my belief, created
from experience, that Investors LOSE FAR MORE by being GREEDY and holding on
for JUST A LITTLE BIT MORE, then watching that stock fall back down to where they
bought it or even BELOW. That's called LOST OPPORTUNITY, oh you may
very well get another opportunity, but THAT OPPORTUNITY IS "GONE FOREVER".
How do I decide WHAT Blue Cheap Stock to Invest IN?
I will first make a statement regarding my reasons for how I will state my
opinion to answer that question.
I do not receive on single penny from Bill Mathews or The Cheap Investor. I am NOT
compensated in any way to recommend Bill Mathews's services.
Therefore, I will freely state HOW I DECIDE WHAT BLUE CHEAP STOCKS TO PURCHASE."
I subscribe to The Cheap Investor & Hot-Line, I usually invest in ONLY Cheap
Investor recommendations. The Cheap Investor uses FUNDAMENTAL ANALYSIS,
Which I believe is the reason for The Cheap Investor's 18 years of
successfully picking stocks which have had small to HUGE GAINS over about 75% of
all recommendations, I know because I researched them. I have been a
subscriber since 1994 and although I did not have the financial ability to
invest in all of The Cheap Investors recommendation's, I have had TREMENDOUS
The Cheap Investor keeps me in the RIGHT stocks at the RIGHT price. I
have learned that even many Cheap Investor subscribers do NOT follow the
simple STRATEGIES Bill Mathews emphasizes , I have been GUILTY of this also
because of GREED, I BUY too HIGH just to get in on the stock because it is
moving, or TOO GREEDY to SELL thinking I will get just a bit more. This I'm
sure, FRUSTRATES BILL MATHEWS also, like a good coach who just cannot get
the player to DO IT LIKE HE TELLS HIM TO. Then as we all know, many times
the player gets off and tells others how it was the COACH's fault. Eve
blamed the serpent, Adam blamed Eve, and so it goes, its never our OWN fault.
Here is The Cheap Investor Number in case this strategy appeals to
the reader of this. 847-697-5666. Bill Mathews book "Winning Big With
Bargain Stocks" is also a very valuable tool in this BLUE CHEAP philosophy.
I hope This in some small way will be of benefit to those who come
this way. I could not help but share this because of how this STRATEGY and THE
INVESTOR Changed my entire Financial status. Here I have openly,
honestly, described my experience in Blue CHEAP STOCKS, I publicly thank Bill
Mathews and his CHEAP INVESTOR.
Common sense goes a long way to a successful conclusion of investment goals...