Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.
Earlier today I had a great letter from Doug S. who wrote:
"Bob: looked at this when you wrote it up in January and didn't buy
because of float and more importantly volume(market makers typically have had a 1/2 to 1 point spread). This raises a question. When you run across a situation like this, great fundamentals with these
problem what are your thoughts. EBIX and even LECO(true float of only about 2 mil it's so closely held) are similar situations."
Doug,
Thanks so much for writing! You have written some very good points about selecting an appropriate stock for investment. In general, I have avoided making too many investments in the smallest of capitalization stocks. However, the utilization of trading rules and the fact that each investment is only a small part of a larger portfolio, allows me the liberty of occasionally purchasing stock in a company like Mesa which according to the Yahoo "profile" on Mesa, has a market capitalization of only $75 million, making this a "microcap" stock. Also, according to Yahoo, the company has a float of only 2.52 million shares and an averae trading volume of only 2,320 shares each day. One can easily imagine why there would be such a wide spread on the bid/ask equation and why an owner in this stock might experience increased volatility.
A small float can work in a positive fashion as well, as witnessed by the trading in the stock yesterday on the back of a strong earnings announcement.
Since I am prepared to part company with any of my investment on an 8% losss, this strategy gives me the confidence to buy shares in companies that might otherwise be too small fo be safe for purchase.
EBIX is also another tiny company with solid numbers. I wouldn't hesitate to buy this stock assuming the rest of the analysis was o.k. LECO, another great company, has a float of over 40 million so it doesn't really fit into the picture in the same fashion.
Bottom line is that assuming everything else is intact, I am prepared to buy stocks of small market capitalization firms. I am less anxious to buy low-priced stocks much under $10. I have found the lower priced stocks to have far too much price volatility to allow me to hang on to them very long.
I am not completely sure that I have answered your question. In summary, I am prepared to buy any particular stock that fits my criteria, and am prepared to sell any of the stocks I own if they hit a sale point that I have predetermined at the time of purchase. I try not to have too many tiny market cap stocks and often spend time looking at the NYSE for top % gainers in order to prevent this from happening in my account.
Let me know if I have addressed your own concerns. I can only tell you what I do. There isn't any correct answer for a question like this. Only opinions.
If you have any other comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.
Bob
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