Newbie Quetions how to buy cheap stock?

As I continue to guide someone that is new to stock market, here are his questions.

Please read my newbie topic for introduction.

Newbie: I’m buying XREIT, key in GTD for 2 weeks.

Me: At what price?

Newbie: RMX.xx Good?

Me: Not sure. Have to check. REIT is slow type. For info only. They buy property and lent out. Just curious, why Xreit?

Newbie: I went to research paper, look at the stock price target and select the lowest price target. Then I go each of them to check their profit, dividend yield and PE ratio. After that I compare them with a few research report. Reliable or not if the comments are the same then I am confident to buy? And I also read up a bit on their background sometimes.

Me: You rule out lowest target price, means you select high target price?

Newbie: Select lowest price target

Me: Why select lowest price target?

Newbie: Because can buy more lots of lower target price right?

Me: No. You should select high target price percentage if you want to filter based on price target.  STOCK A Price RM1.00, target peice RM1.50 (50% upside). STOCK B RM2.00, target price RM5.00 (150% upside).  Buy which one?

Newbie: Buy STOCK A, becuase is cheap.

Me: No.   Should buy STOCK B.  If you have RM10,000 you buy 10000 STOCK A. After 1 year STOCK A price RM1.50, you make RM5,000.   If you use the RM10,000 to buy 5000 STOCK B, after 1 the price is RM5.00,  you make RM15,000.

Newbie: Oh I see.

Me: Cheap or not cheap is look at the PE Ratio, the lower the cheaper. Not just looking at the stock current price. The stock target price is the potential price that analysts forecast. The higher the upside percentage, the better.

Newbie: I didn’t know.

Me: It is not wrong for you to buy Xreit, but the reason of buying must be right. Do you want to rethink or reconsider?

Newbie: Yes. But I already GTD for 2 weeks. Can cancel?

Me: Can.

Newbie:  Okay. I cancelled it already. Thanks for the info.

Me: Ok.

END.

The communication above reminds me of one madam 13 years ago. She told me SHELL stock is cheaper that ESSO because Shell is RM2, ESSO is RM3. Worth to buy Shell, better than ESSO. I can’t remember the exact price or the range. But the thing is, she just purely based on price.

Imaging now you say Maybank is cheaper than PBBank, because Maybank is RM10 and PBBank is RM18. Better buy Maybank, cheaper, better than PBBank.

Then tomorrow PBBank ex for bonus one for one, price become RM9. And after 24 hours you suddenly change, say now PBBank is cheaper, worth to buy, better than Maybank.

If the lower the price the cheaper, then everyone no need research report, just open up newspaper or on your online trading screen, buy everything on those RM0.005 or RM0.01.

Look at PE Ratio, not just price. Of course, other factors also important.

Please LIKE my facebook to support.

Very nice restaurant here.