Low-Priced Stocks Shine In 2020

When it comes to investing there is a clear preference for low-priced stocks, at least when it comes to small ticket size investors. Shreya Chaware identifies how the low-priced stocks have performed in 2020 versus high-priced stocks while also analysing the pros and cons of basing one’s investment decision based on the ‘low price’ bias

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The year 2020 has been good for some but quite frustrating for others. Unprecedented liquidity support and volatility hit the markets in 2020 and in the end those with conviction in equity emerged victorious. Even as there are many highlights worth mentioning about how the markets performed in 2020, it clearly was a year when the low-priced stocks managed to stage a decent performance. In the investing world, it is common to see investors with certain prejudices. Different investors have different perceptions and prejudices about the stocks market and the group of stocks that may outperform.

For example, many investors believe that low PE stocks are great for investments while some believe high RoE is great when it comes to choosing stocks for investment. The thing with any investment in financial asset is the emotional commitment. Investors tend to invest carrying a certain notion or a bias. For example, the notion that IT stocks always outperform when USD strengthens or PSU stocks are always highly undervalued, etc. With such pre-existing biases investors tend to invest in certain group of stocks and once the investment is made such biases increase greatly. With financial commitment there now is an emotional commitment.