Should You Gamble on Less Active Stocks?

Wynn Resorts (WYNN) has gotten a lot of attention recently, to a large extent because of its growth in Macao, the largest gaming region in the world. How much does institutional buying affect the stock when it makes important announcements or releases earnings? Probably a lot: Wynn only trades 2 million shares a day, so in theory, the sale of big blocks of shares could move the stock a great deal. Wynn's 52-week high/low is $72/$151, a very wide spread.

Similarly, retailer Costco (COST) trades only 2.4 million shares a day. Monthly sales data can move this stock a great deal in a short period of time because the shares are thinly traded compared to other large retailers. Costco's stock rose from $70 on March 16 to $78 on April 7, thanks to excitement about improved earnings. Does it matter that the large change in the number of shares it trades when it issues results tends to move its stock price more than might be the case with a widely traded competitor like Walmart (WMT)?

Street Directory recently made the argument that if investors want some degree of price stability, they should buy stocks which have heavy daily trading volumes. "Stocks with a high volume are very liquid, not to mention they have lower spreads between the bid and ask prices. Technical analysis works best on liquid stocks because trends are more fluid and give more data on which to base a decision," its article pointed out. Stocks with less liquidity tend to experience more price swings on volume spikes. For example, a small biotech that releases good news can rise 50% in a day as traders move into the stock.

Is the argument that highly liquid stocks are more stable than those with fewer shares true? Probably, because the fundamentals of supply and demand rule trading as they do most economic transactions.

But this leaves the investor with a decision: Does he prefer the potential of sharp moves up or down that comes with a stock whose normal daily volume is modest? The risks involved are considerable, but so are the potential rewards.

Investors who would rather count on a stock's tendency to trade within a relatively small range should stick to the "most actives." These are usually large companies that also tend to pay dividends -- another source of steady returns. The most active list usually includes the largest banks, such as Bank of America (BAC), and multinationals like GE (GE), Microsoft (MSFT), and AT&T (T) -- stocks that are unlikely to be roller coasters.



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Dereck

Major Fraud Alert


The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 28 2011 at 11:45 PM Report abuse rate up rate down Reply
cuttercrm3

NOTHING BUT A BUNCH OF KNUCKLE-DRAGGERS ON THE BOARDS, SINCE AOL SAVED HUFFINGTONS BUTT FROM BANKRUPTCY. SHAME ON AOL.

May 20 2011 at 4:21 PM Report abuse rate up rate down Reply
PsychedelicSpell

Hear that hiss? You can almost hear the dollar deflating. Soros is buying up Gold and Aol is advising you to buy weak "less active" stocks. Gamble is the key word with the stock market. And the odds are stacked against you.

May 18 2011 at 8:46 AM Report abuse +2 rate up rate down Reply
carpenterclay

I am going ALL-IN on Sandridge Energy (SD)... The flooding in Mississippi and Louisiana is
going to send the $10.00 stock through the roof very soon........ Even the last 3 days analyst
reports say the same thing.

May 18 2011 at 8:42 AM Report abuse rate up rate down Reply
sjoberdix

The only place to put your money is in your mattress, if you put a penny in this corrupt market you deserves lose every bit of it!!!!!!!!!!!!!!!!!!!

May 18 2011 at 8:03 AM Report abuse rate up rate down Reply
savemycountry911

MS. PELOSI FOR PRESIDENT. She is sooooooooo much smarter than when she was Speaker.

May 17 2011 at 10:05 PM Report abuse +4 rate up rate down Reply
998

Only the greedy hedge fund vulture's will loose. Commodities are dropping like lead balloons, so are the costs to make & deliver. This will make every stock look great when the next quarter financials come out! You snooze....

May 17 2011 at 1:36 PM Report abuse +1 rate up rate down Reply
1 reply to 998's comment
icemanbill23

...in your dreams maybe. The only thing supporting the market right now is the continued devaluation of the U.S.Dollar. The Dollar is strengthening right now against the Euro which is resulting in only a minor pullback in Commodity prices. The Fed's monetary policy supports the market by weakening the Dollar and creating the illusion of wealth and prosperity. This reckless policy will insure the continued rise in Commodity prices well into the future.

May 17 2011 at 4:42 PM Report abuse +2 rate up rate down Reply
1 reply to icemanbill23's comment
majorthomecho

It is funny that you can "gamble" on stocks, but can't "gamble" on poker, but you know what? To a skilled player, poker is less of a gamble than stocks are for a skilled investor.

May 17 2011 at 12:51 PM Report abuse +3 rate up rate down
majorthomecho

It is funny that you can "gamble" on stocks, but can't "gamble" on poker, but you know what? To a skilled player, poker is less of a gamble than stocks are for a skilled investor.

May 17 2011 at 12:51 PM Report abuse +3 rate up rate down Reply
1 reply to majorthomecho's comment
luckylucy

touche'... it all comes down to taxing the gains and screw you on the loses...

May 17 2011 at 3:00 PM Report abuse rate up rate down Reply
998

Oil and other commodities is on its way down! The cost to make & delever goods will drop way down. This will amount to a stimulus for the economy we wont have to pay back. After "the spook factor", the market will rebound and add great gains beyond that.

May 17 2011 at 12:37 PM Report abuse -1 rate up rate down Reply
1 reply to 998's comment
mouse

If you have money to burn invest in a stock that is high profile. If you want to be safe in this volitile market, buy property that is seriously unvalued. Then you can have rental units and still hold some value on your investment.

May 17 2011 at 12:11 PM Report abuse -1 rate up rate down Reply