It’s a well-known fact that “getting in on the ground floor” is one of the best ways to make big investment gains.
But, here’s the problem: Most of the time to “get in on the ground floor” of a company, you have to be 1) well connected, 2) already rich, or 3) very, very lucky.
Simply put, it’s not something most of us have the opportunity to do in private companies or other investment ventures.
But, there is a way we can “sort of” get in on the ground floor — and it’s in a place you wouldn’t expect — the stock market.
Now I know what you’re thinking …
By the time a company does its initial stock offering — its IPO — the opportunity to get in “on the ground floor” has passed. But frequently companies that issue their IPO to less fanfare than a Facebook or Google, offer investors another opportunity to get in on the ground floor.
|Getting in on an IPO is next to impossible. But there is another way to possibly buy at “ground floor” prices.|
A lot of companies’ IPOs go for cheap prices, often below $10/share, because the market and investors don’t appreciate the company’s growth potential. Remember that when a company goes public, more times than not they are selling a piece of the company in exchange for money that should make the company even more profitable over time.
And when the price of the stock is cheap, again below $10/share, it generally means the market hasn’t fully realized the potential management thinks it has.
Get a Bigger Bang for Your Buck!
Smaller, younger, lower priced companies are almost always growth oriented. And buying their shares “at the ground floor” when prices are in the single digits can give you great exposure to the growth ahead.
One reason is that for lower priced stocks, you can get a lot more benefit when earnings per share increase. Think about it …
Suppose a stock trades for $8 and the company increases earnings by 80 cents. That’s likely going to have a much greater effect on the share prices going forward than a stock that is priced at $500 and sees an 80 cent earnings increase.
And buying stocks that have low prices but great growth prospects exposes you to the maximum benefit of that anticipated growth. Plus it can be a nice compliment to most any investment portfolio.
We all know there is a place in investment portfolios for the multi-billion dollar behemoths with huge balance sheets and reams of cash. But it’s just a fact of life that the bigger a company gets, the harder it is to generate fantastic growth.
However, by adding some lower priced, growth oriented, quality stocks to your portfolio, you can add the potential for serious returns, as these smaller companies, with cheaper share prices, grow over time. You’ll get greater exposure to the investment returns that come with that growth, returns that can far outpace the sluggish mega caps that once were the growth stocks of yesteryear.
To find today’s gems, look to stocks that are trading on the cheap but offer great growth potential — buying them at prices below $10/share can get you in “on the ground floor.”