Visually cheap stocks preferred? Therefore, do not just look at the course when you buy!

It is probably rooted in our human psyche. Because in addition to other aspects, when choosing a share, one is often also aware of an optically cheap price. For example, if you are interested in the shares of two companies, it is not uncommon for the one with the lower price to appear much more attractive.

You simply can not deny that with an investment of perhaps 2,000 EUR we would rather buy 100 shares for 20 EUR each than 10 shares for 200 EUR each. But I must say at present that I have not always achieved satisfactory results with this approach.

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For a long time, I also believed that a share with a price of 20 euros could possibly double in price faster than a share that also had a unit price of 200 euros. But I now know that I was the victim of a fairly common fallacy.

cheap or expensive?

It should be clear to everyone that you can not see if a stock is cheap or expensive just by looking at the price. You can look at other factors here. The two key figures P / E (price-earnings ratio) and KUV (price-sales ratio) are quite popular here. But something else may be worth noting here.

Let’s just take two different corporations. Where company A has issued a total of DKK 1 million. shares, and company B has issued a total of DKK 10 million. equities. Let’s now assume that A’s stock price is $ 100 and B’s cheap is $ 10. Then each of the two companies would have a market value of exactly 100 million euros.

Now, with an investment of 2,000 euros, you would buy a different number of shares from each company. But given their market values, you would have an equal share in both companies. And I think you really need to think about this fact. Especially when trying to determine if a stock is expensive or cheap.

Do not ignore optically high prices

Perhaps it would be better to adjust your stock choice in such a way that you are no longer deterred by a slightly higher price. And if a stock has been able to shine with a rising price for a long time, there should be no reason to dismiss it as overpriced in advance. But on the contrary. This circumstance could ultimately indicate that the business of the company in question is doing well.

And then there really shouldn’t be that much to say against the possibility that the price could continue to rise for a long time. Why, after all, should the stock not continue to rise in price right after you buy it? At least if one now assumes that business development will continue to be positive.

Unfortunately, the reverse is also the case. If a company has problems, it often happens very quickly that the share price is also affected. You can probably get in cheap now. But the danger is quite great that the listing may go even further down.

My conclusion

In the past, it often happened that I also invested in such supposed “coups”. But only after the purchase have many of them actually developed into cheap stocks. Therefore, I no longer focus too much on the share price, but on the future prospects of the respective group.

If these continue to prove good, I will consider buying, even though the stock price has been in a fantastic upward trend for years.

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