dr_usual
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The one thing that's always true about risk between higher and lower prices is that you have less capital invested when you buy the stock at a lower price. I.e., you have less to lose if the stock tanks.
Realistically, though, the relative risk depends a lot on the stock's normal trading range. For instance, consider a stock that normally trades between $28 and $30 per share. You could argue that the stock is "less risky" at $28 than at $30, because if you buy 10,000 shares, you're putting $20,000 MORE on the line at 30 than at 28.
On the other hand, this stock could be extremely risky at $25. Why? Because the stock market is the world's biggest sheep pen. If the stock price falls too far with too many sales, other shareholders panic and begin selling off their shares as well. Suddenly, the stock plummets. (Biggest example of this, of course, is the Great Depression.)
Savvy investors love to invest in a strong company when the company's stock has had a small slide via panic. They count on the company's performance pushing the stock back up to the "normal" range. Most investors don't have the strong stomach to buy a stock on the downward slope, though, so they buy at the "less risky" $28, panic when the stock hits $25, sell it at $23, then kick themselves when it rises back to $33 later. |
Chuck P
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There are many reasons a stock could be undervalued. One reason may be the company has just gone public, another may be the stock has just split as with Research in motion,it just split 3 for 1 so instead of being $240. it's now $80.00, another reason could be the company has had bad earnings, like Google, they are a good stock they just had a bad quarter. |
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