Wisdom is sometimes offered as a positive statement. Examples include “A penny saved is a penny earned” and “A stitch in time saves nine.” The second one, about stitches is saying it is better to correct a small problem now than to have to deal with a bigger problem later. Many of the Proverbs of the wise King Solomon contrast the negative with the positive. The positive is often obvious common sense, but oftentimes we need to see the dangers and harm caused by poor choices. For example, Proverbs 15:32 says, “Whoever ignores instruction despises himself, but he who listens to reproof gains intelligence.” This is always true with every aspect of life, including investing.
Recently I saw a Facebook advertisement for Charles Payne’s new book UNSTOPPABLE PROSPERITY. It was offered for no cost, except for “shipping and handling.” I like Charles Payne and sometimes listen to his show on the Fox Business channel when I am in our Ford Escape, so I decided to order the book. I was stunned to see that the S&H was about $15 when I was about to finish the transaction, so I abandoned it. One day later I got an email telling me I could get the book for only $6.95 S&H. That price made more sense.
Charles offers a lot of positive wisdom for the investor. On page 185 Charles lists seven classic mistakes investors make. He is warning the reader that these are good ways to lose money in the stock market. The seven classic mistakes are shown in the image with this post.
Let’s focus on the first one: Buying “cheap” stocks. It is tempting to buy 500 shares of a stock that costs $1.00 per share, because you can own 500 shares for $500. You think you are getting a bargain. Instead, you are buying a high-risk investment that is likely to be worthless. When a stock is selling for $1.00, ask yourself, “why aren’t wise investors buying up these shares?” It won’t take much digging to determine why. You might be far better off buying five shares of a stock with a price of $100 per share. For example, when Apple shares were selling for $100 you could have purchased five shares for your $500. It did not take long for those five shares to reach $265 per share. Therefore, your $500 investment is now worth $1,325 – and that doesn’t even include the dividends.
Don’t make the mistake of thinking that buying more shares is the way to make big money. That rarely happens. There is another proverb that says, “A fool and his money are soon parted.” Don’t be that fool. Use your $500 to buy quality investments.