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Strategic Investment Advisors, LTD

Low Priced Stocks No Bargain

As I wrote about last week, the absolute level of a firm’s stock price is arbitrary, as it can be easily manipulated by the firm through altering the number of shares outstanding (for example, by splitting the stock). Despite this obvious fact, the research into investor behavior has found a strong preference among individuals for low-priced stocks.

For instance, the research shows that individual investors tend to hold lower-priced stocks than institutions. And there’s also evidence demonstrating that the number of small shareholders in a stock increases following a split to a lower price level.

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