Page 428 - How to Make Money in Stocks Trilogy

298 BE SMART FROM THE START

in them. The potential profit from a foreign stock should be a bit more than
that from a standout U.S. company to justify the possible additional risk. For
example, investors in foreign stocks must understand and follow the general
market of the particular country involved. Sudden changes in that country’s
interest rates, currency, or government policy might in one unexpected
action, make your investment less attractive.
It isn’t essential for you to search out a lot of foreign stocks when there
are more than 10,000 securities to select from in the United States. Many
outstanding foreign stocks also trade in the United States, and many had
excellent success in the past, including Baidu, Research In Motion, China
Mobile, and América Móvil. I owned two of them in the 2003–2007 bull
market. Several benefited from the worldwide wireless boom, but corrected
60% or more in the bear market that followed this bull move. There are also
several mutual funds that excel in foreign securities.
As weak as our stock market was in 2008, many foreign markets declined
even more. Baidu, a Chinese stock leader, dropped from $429 to $100. And
the Russian market plummeted straight down from 16,291 to 3,237 once
Putin invaded and intimidated the nation of Georgia.

Avoid Penny Stocks and Low-Priced Securities
The Canadian and Denver markets list many stocks that you can buy for
only a few cents a share. I strongly advise that you avoid gambling in such
cheap merchandise, because everything sells for what it’s worth. You get
what you pay for.
These seemingly cheap securities are unduly speculative and extremely
low in quality. The risk is much higher with them than with better-quality,
higher-priced investments. The opportunity for questionable or unscrupu-
lous promotional practices is also greater with penny stocks. I prefer not to
buy any common stock that sells for below $15 per share, and so should
you. Our extensive historical studies of 125 years of America’s super win-
ners show that most of them broke out of chart bases between $30 and $50
a share.

What Are Futures, and Should You Invest in Them?
Futures involve buying or selling a specific amount of a commodity, finan-
cial issue, or stock index at a specific price on a specific future date. Most
futures fall into the categories of grains, precious metals, industrial metals,
foods, meats, oils, woods, and fibers (known collectively as commodities);
financial issues; and stock indexes. The financial group includes government