Nature of the high and low-priced stocks:
Volatility: This refers to the fluctuating average price of the stocks. The relatively cheaper stocks tend to be somewhat volatile. Naturally, they are more inclined to rapid fall in price. They rise and fall, in a short span and frequently. Hence, people who are looking for stability and security would not want this. On the other hand, high priced stocks behave differently. They are less volatile; hence the investors tend to be long-term.
Risk: The risk factor is always more significant for low-priced stocks. Many believe that whatever comes cheap brings with it an element of risk. Low priced stocks are traded infrequently. They have been in the market for a reasonably long time and maybe performing poorly. Hence, they are now available at a low price. This increases their risk factor. On the contrary, high priced stocks, due to their reputation and value, tend to be less risky to invest.
Affordability: Low priced stocks also happen to be more affordable for investors, who are just making their entry into the market. They could always increase their investment in those stocks shortly. On the other hand, in the case of blue-chip stocks, sometimes, there is a restriction for the entry of new investors. Many investors also cannot increase their investment in those stocks.
Regulations: SEBI (Security and Exchange Board of India) monitors the activity of all stocks. The high-priced stocks, being in the limelight, always face greater scrutiny. Whereas, the low-priced stocks might not attract as much attention. Most of the times, they are not even registered on major stock exchanges and do not have to file with SEBI. Fewer rules and compliances create a lack of credible information to make an investment decision.
Higher priced stocks indeed do have their advantages and privileges. Yet, lower-priced stocks still manage to lure investors to them. How?
– Often an investor goes by the logic that with a definite sum of money, they can buy more number of stocks with low priced stocks. Some of them are tight with their cash. They then prefer to go more for quantity than quality.
– A lot of investors believe that a stock of lower value has a better chance of doubling up.
– Also, going by the trend, a lot of low priced stocks have generated huge returns.
– Often investors tend to focus on Price to Equity (P/E) ratio while making the investment decision. The low priced stocks have a relatively lower P/E ratio, which means that an investor has to pay less to buy stocks of that company. This is a big draw for investors.
Which stock gives higher returns?
High priced stocks vs Low priced stocks
Return matters most to the investors. The retail price of a stock is not always the best indicator. While in case of lower price stocks, their price may double, but it’s rare. On the contrary, it has been seen that higher-priced stocks, valued at higher than Rs 500 have shown much better and higher return. This is observed for both short and long-term periods. For higher-priced stocks, investors do need a much more significant investment in the beginning.
Although high priced stocks run the risk of prices taking a dip, they give very high returns, most of the time. In case the price goes down due to rights or bonus issue, they recover and give decent profits. It would help you grow your money many times.
Conclusion: The stock market is volatile. You need to be cautious while investing your hard-earned money. It’s best to do your research carefully or consult with a market expert before making any such investment. Or even better, you could always reach out to Angel One for any advice or suggestion on your investment!