STREET DOGS: Think twice before crossing your fingers and buying a cheap stock
There has to be reason to believe that the low valuation will not persist before jumping in
Whatever the reason for its appeal and widespread popularity, no reason for buying is more persistent among amateur investors than simply loading up on shares that have recently lost much of their value. Isn’t it strange that a trader who refuses to buy a stock at 70 when the market is dull, will buy on a reaction after the stock has risen to 82 and dropped back to 76?
“It’s one thing if you have a very cheap stock and reason(s) to believe that the cheap valuation will not persist,” says Lee Ainslie — “there’s a new management team, there’s an activist shareholder, they’re restructuring, they just made a decision to buy back stock … but it is important to identify a catalyst that should benefit the valuation. ..