Friday, May 24, 2013

Buy Stocks at the Bottom of the Spread

If you are interested in buying a stock, you need to check the stock's 52-week high and low before you risk your principal investment. You may think that this data is insignificant, but the spread between a stock's 52-week high and low does have meaning. If a stock's 52-week high price is $100, and the stock's 52-week low price is $99, this means that you are going to pay only $1 less per share than the highest price the stock has reached during the past year. 

When you shop for items in your local grocery store, you try to buy food, toilet paper, paper towels, soap, laundry detergent, Earl Grey tea, coffee, orange juice, milk, cheese, yogurt and soup at sale prices. The same basic rule applies to investing. If you pay too much money for a stock, you run the risk of losing a larger percentage of your initial investment. Some people may argue that the stock might continue to rise while you sit in the wings refusing to participate in the stock market. While this philosophy may hold some truth, the majority of  financial experts believe that buying low and selling high is the safest strategy.

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