It’s certainly a phenomenon that I believe has been encountered by a relatively large number of investors. Namely that when choosing shares they are often aware of a visually cheap price, in addition to many other aspects.
And I suspect this is definitely more common than you think. But this behavior might be familiar to you. Perhaps you have already been interested in two stocks from the same industry. And finally you chose the one with the optically lower rate.
But our brains are programmed the same way. And there is no doubt that most of us would rather buy 100 shares at a price of 50 euros per share for an investment of e.g. 5,000 euros rather than just ten shares at a price of 500 euros per share.
But I have now come to the realization that such an approach is not really essential to investment success.
A brief search for clues
So we should ask ourselves why we often avoid stocks that are reasonably priced. Among other things, I think this may be related to the following fallacy.
Namely that a share that costs only 50 euros can possibly double in price more quickly than a share that is traded at the same time at a unit price of 500 euros. But that’s just something we imagine.
Consider how it would rather be very realistic. Conversely, an optically cheap 50-euro share will naturally be halved in price just as quickly as the 500-euro share.
A high price also suggests something else to us. That the stock in question could have been rising for a while. And here, of course, the fear quickly creeps in that you have just jumped on the moving train too late.
But doesn’t a share price that has been rising for months point to a solidly functioning company? Here we must remember the stock exchange motto “The trend is your friend”. Because what would really speak against the fact that the corresponding listing does not go up even further.
Let’s capture one more thing. A stock that has a three-digit price simply seems too “expensive” to us. But it is not actually possible to determine whether a stock is cheap or expensive by looking at its current price.
There are still other factors to consider here. The price-to-earnings (P/E) ratio and the price-to-sales (P/S) ratio are two of the slightly more commonly used metrics here.
It is therefore possible to invest in suspected “coups”. And it’s only later that you realize that they develop into really cheap stocks only after you buy them.
But it could just as well be that you pay 500 euros for a paper that might double in price after a year. It is therefore actually clear to me that the purchase price alone should have almost no influence on investment success.
Instead, you should also base your investment decisions on other criteria. For example, about the future prospects and the quality of the respective company. Of course, it does not have to be a guarantee of success. But you may be able to prevent yourself from falling for supposedly cheap purchase prices too often and thus optimize your investment success.
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