Wednesday, December 4, 2013
Caution: Investing in Growth Stocks May Cause Serious Injury
Yes. If a stock is already pumped up with such a high earnings multiple, even a lack of awesome news can cause a sudden and significant drop in market price. Luckily, I already knew this and used a sell-stop to take a $13,000 profit during the previous earnings announcement.
But, with value stocks--Pfizer and GM--I never think about sell-stop orders. I just follow the company and hold the stock unless there is clearly disaster up ahead.
And, that's the difference between investing in growth stocks versus value stocks. With growth stocks, if the news isn't really good, the share price can plummet. That's because good news has already been baked into the inflated stock price.
With value stocks, as long as the news isn't terrible, the market price usually hangs tough--since bad news has already been priced into the stocks.Pass your Series 65 or 66 exam