Looking for stocks that can triple? Why pricey names must be on your shopping list, too
Here is InvestingClubmailbag@cnbc.com Club Mailbag E -Post – So you send your questions directly to Jim Cramer and Analyst team. We cannot offer personal investment advice. We will discuss more general questions about the stocks in the investment process or portfolio or related industries. This week’s question: I want to ask about upside. The club usually preaches the importance of value, but many of them believe that a share of $ 70 is superior to a 700 -dollar stock. Should we completely ignore this? For the context, I only invest in high growth stocks that I only expect to go to at least four times. -Brian H. It is true that many people believe that they have more potential than a similar company that trade at a higher price of low -priced stocks. However, this view is misled – in fact, there is a name or names for it. Some call it low -priced prejudice or unit bias. For the sake of clarity, we will go with “low -priced prejudice” in this story. Another similar concept is the illusion bias. Let’s open them very quickly. Low -priced prejudice is the belief that a low -priced stock is a better value and therefore has a higher potential than the higher price due to its price. Basically, the price of a stock leads to incorrectly placed expectations. Money illusion error occurs when someone cannot distinguish between nominal value and real value – for example, nominal, the same as $ 1 in 1920 today. Of course, due to inflation, we know that today, Woodrow Wilson, Woodrow Wilson, the US president and central leather industry average, is more than $ 1 when there is 20 stocks. According to a number of inflation calculators, today’s $ 1 was more than $ 16 in 1920. In both cases, the person who is guilty of keeping this prejudice incorrectly perceives the low nominal price of the stock as an indicator of value. In other words, they believe that the low price is actually equal to value. Take this to the extreme point and go down to penny stocks that are not so sincere. As a result, if a lower share price is associated with higher potential returns, what could be better than a penny stock traded on the stall markets? We know that this is not true. Of course, some penny stocks will continue to provide legitimate, jaw -lowering returns as the management teams are running and companies become more solid. However, these tend to be exceptions, not rules. Like winning the lottery. Most of the Penny stocks are penny stocks, because the companies they represent – like buying a lottery ticket – is nothing but a gambling. As a result, large companies do not want to trade in OTC markets, which lack the same supervision and centralization of stock exchanges such as Nasdaq and New York Stock Exchange. Large companies want to collect hundreds of millions of dollars, although not billions of trade in the world’s largest, most liquid stock exchanges in the world. In the end, if we’re talking about real investment – if a company means buying, you believe that basic foundations will raise the stock further, not because you think you’ll find a fool that will pay more for the same being – it comes to valuation again. That is, at this time, do you prefer to buy the stock of a mature, commodity -oriented company, for example, a stock of less than $ 40 or a $ 500 AI provider? Take this scenario. On December 29, 2023, investors may have taken the International Paper’s shares for $ 38.64. On the same day, you can buy shares for 49,56 dollars in divided NVIDIA. A critical warning: NVIDIA has been divided into 1 to 10 stocks since then in June 2024. This means that Nvidia shares actually cost $ 495.60 on December 29, 2023. ELECTION: Cross Roughly $ 39 or some NVIDIA shares for about $ 500. Remember, until then, you’ve been looking at a stock that returned to about 240% in Nvidia only about 240% compared to last year. This example is a clear support for the idea that the price should not be priority compared to other metrics. At the simplest level, stock divisions, such as Nvidia’s last year, can instantly reduce the price of a stock, but this mechanical setting does not change the valuation or appearance of the company in any way. As a result, there should be no effect on your stock view. If your only concern was the share price, you would openly go to international paper shares. However, if you focus more on the growth appearance of each company and the qualitative dynamics of AI trade for revenues and earnings, you’ve seen more than the manufacturer of cardboard boxes, paper bags and other paper products in NVIDIA. If you have purchased international paper at the end of 2023, you will get a total cumulative return of 34%from the closing of Wednesday. Alternatively, choosing Nvidia, because you really liked the basic installation and left aside the nominal price – it would have roughly a rough return of 259% during this time period. As we confront these facts, we believe that the price is once again what you pay, it is what you get value. Examination of behavioral prejudices is perhaps one of the most interesting investment areas. As investors, we must be familiar with these concepts. But more importantly, we must work carefully to get to know that we are guilty of committing them to ourselves. In fact, studying behavioral prejudices was part of the Chartered Financial Analyst Course, which is a clear sign of its importance. Warren Buffett once said, “Your investment is simple, but it’s not easy.” If you ask me, it will reach the heart of this behavioral finance. It can be relatively simple to explain the concepts of investment or to teach a financial picture, but it is often easy to accept one’s own prejudice and adjust behavior accordingly. With this one question, it is clear that you can define two possible prejudices, even if the real names are not familiar. This is a success that we all have to try to multiply. After checking this box, everything is about making us a sacrifice. The good news is that these two special prejudices fall under the bucket of “cognitive prejudices”, unlike “emotional prejudices. It is much easier to correct a prejudice based on errors how we think of things than to correct emotion -based prejudices. In order to correct a cognitive prejudice, we need to improve our understanding. On the other hand, correct how we react emotionally to things – there are no easy answers for this. It is a continuous learning process for all investors. (Look here for the full list of the Shares Cramer’s philanthropist confidence.) 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