THE MYTH ABOUT HIGH-PRICED AND LOW-PRICED STOCKS

THE MYTH ABOUT HIGH-PRICED AND LOW-PRICED STOCKS

In one of our previous articles, we had spoken about the misconception about Large-Cap stocks being the only type of stocks which can provide secure and steady returns. Today we have another interesting and broadly talked about topic – the myth about High-priced and Low-priced stocks. To just give you a feel of this topic, let us look at an example right away.

1.  High-priced stock – Eicher Motors, CMP: Rs 22,000

2.  Low-priced stock – Ashok Leyland, CMP: Rs 75

Both of the above mentioned stocks belong to Auto industry and are big market players.

The myth that we are talking about here is that most investors have this understanding that high-priced stocks are always expensive investment and low-priced stocks are always cheap investment. Now, we being a complete fundamental research driven advisory company, we know this is not true. So we decided to clear this myth.

Below mentioned is a table of the past performance record of Eicher Motors, Ashok Leyland and BSE Sensex in last 3 years.

Yes, the details mentioned are true as we picked up this data from BSE official website.

In India, we have this mentality to determine the value of things based only on its price or the definite figures. In some areas like an exam mark sheet, it is accepted because we can clearly conclude if the student has passed the exam or no based only on his marks. But it does not hold true in stock market.

In the table above you can very clearly see that Eicher Motors having its stock price 250 times of Ashok Leyland has delivered 4 times the returns compared to Ashok Leyland or 11 times compared to BSE Sensex.

3 years back, only if you could peep into the future and see that Eicher Motors will be delivering such astonishing returns, we are sure you would have bought as many shares of it as possible even it was trading at Rs 2,500 back then.

So on an ending note, what we want to arrive at is the fact that an investor should not be a very conservative investor and should never blindly accept the myths and misconceptions about stock market community. An investor who wants to amass great wealth on a longer term will have to broaden his view about stocks and go beyond just the stock price. A smart investor should have the knowledge to determine the true value of a company, understand the company’s business and its fundamentals and take an informed decision.

Happy Investing