re: Medium risk/high reward cheap stock needed

I used to have this “look at market cap only” way of thinking but, for what he is looking for, that’s not really the case. At least not in 2020+ market. I get the logic behind it but take a look at GameStop and let me know how much this market cares about market cap.

There is way more access by uninformed investors and, as such, it’s often not a bad idea to look at price with these micro caps instead of MC. Do you want to have an idea of MC? Yes. But the float, the trading volume as a percentage of that float, and the price are pretty important. The market is stupid now. Things run to market cap values that are just irresponsible, but they get there anyway.

If I buy 10,000 shares of BioTech Awesome Corp for $0.10/share at a market cap of $250M and they release some positive Phase II trial results that will cure cancer eventually (they all do) that stock could run to $1.00 share and a $2B+ market cap no problem in a couple days. It won’t stay there, but it will run because the price is still only a dollar. Now, try to get a $2B market cap on one bit of news with a stock that has been trading consistently at a price of $10/share with a $250M market cap and it’ll get much much more resistance.

At those low prices, a lot of the shares are not controlled by institutions because they can’t buy stocks with prices that low. There are actually strict dollar price limits they trade, nothing to do with market cap. So it’s more of a wild Wild West down there. Retail will “HODL” vs an institution that will sell in massive volumes and squash a run if they hit certain targets.

Basically, the stocks with the higher prices tend to trade a lot more comfortably within fundamental ranges. The stocks with lower prices, even IF the market cap is comparable, are more suspect to technical swings and general market shenanigans. So if you’re looking for a gamble, it can be advantageous to stay below $2/share. Not saying potential short term five baggers don’t exist above that range, but it’s easier to find one at the low prices that will run for no reason.

It’s also easier to find the ones that drop from $0.10 to trips in a month. That’s probably why he accurately called it gambling.