Low–Priced Stocks: Cheap for a Reason but Possibly a Great Investment

As bad as the economy appears to be right now, the one very broad silver lining may be the fact that novice stock traders can take advantage of the less–than–ideal trading conditions. With companies struggling and the market on a daily roller coaster ride, the timing is perfect for those who really want to understand how the American economy works. Many feel less intimidated in these conditions and are more likely to take risks on their own, if for nothing else than to learn from their mistakes. Let's face it, many of us would love to be able to discuss the stock market intelligently and, for many, the most successful learning comes from trial and error. When we don't ask questions because of our fears of sounding uneducated (which, again, is true for many of us), the only other option is to simply jump in. As simple as it sounds, you have to remember human nature is what it is, and even the most successful traders had to learn too. Odds are that many of them were more comfortable with the ''live and learn'' concept of doing it themselves with little or no feedback from more experienced traders — just as many of us are. And also, you have to consider that companies are counting on smaller investors to come in and offset some of the larger losses many have faced. It's win–win regardless.

Are you convinced yet? If so, your next question may be, "what's the first step?" Get a feel for the many trading sites. There are many available and you can pick up a lot of tips without having to do heavy studying. After all, you don't need a resume filled with previous accounting and financing jobs, nor do you need a briefing on a company's corporate finance filings. You can learn the lingo, so to speak, and browse at your own pace. From there, you'll want to do some research on not only the most successful companies that seem to be weathering the rough financial waters, but on those companies that have taken a hit due to the events that seem to be dictating a lot of the market's activities. In other words, stocks may drop for an otherwise successful and healthy company, and so , due to other factors that may affect the core company on a peripheral level, it may find itself struggling. Those should be the first ones you consider.

Although common sense tells us we're getting a bargain when we're buying shares at $10 per share that were $77 per share only a month ago, you should understand why the shares have lost value. If they're experiencing temporary drops, as mentioned above, then it very likely could be an ideal buy. If, however, the company's announcing layoffs, is having cash flow problems, or is in talks with another company regarding a merger, then you may want to reconsider investing your money. If you're wondering if all of it amounts to nothing more than a gamble, you're right. However, unlike a game of roulette, stock trading doesn't have to be a game of chance if you go in with a game plan. You don't need an MBA, either; a sincere effort to understand and a willingness to do the necessary research may yield a nice profit for you in short order.



Who knows, the first of the year may bring with it a job loss or the search for a new career in your family. Having made a bit of money trading stocks could very well provide the needed cushion that could offset some of the expenses during the transition. It's important to realize, though, that success is not written in stone, and you could very well lose the money you chose to invest. Trading stocks, especially as you're learning the ropes, is a risky business and certainly not something you'll want to do if you can't afford it. Let's face it, the stock market's going nowhere and there's always time to jump in; allow your common sense, wisdom, and level-headed thought process to rule your decisions. And regardless of anything else, you should never make decisions such as these out of fear. If your gut feeling tells you the timing's wrong, by all means, go with it. A great stock price means nothing if you can't afford it.

Assuming that you have a bit of money to invest, remember to start small. It may seem trivial, but remember, this is money you've already worked hard for one time. Your goal is simply to shift the game play — ideally, it's time for the money to work hard for you. But there are those who simply can't enjoy any gains if they're constantly worried about how devastating a loss would be. Clearly, you must have a strong understanding and a realistic definition of how your worst case scenario would look. By the way, your worst case should amount to a break-even. If you can plan and act accordingly, you may be better positioned to ensure you don't lose a lot on a stock that you once considered a sure thing.

With a combination of solid decisions, faith in your own choices, a small investment, and the advantage of an environment that's conducive to small investments, a year playing the market could provide a better financial future for you and your family. Who knows, you may discover a new finance career in the making.