Rule #1 Finance Blog

With Investor Phil Town

QUESTION OF THE WEEK: 52-WEEK LOW

Q:  I have been working with my MOS lately, and was wondering if the 52 week low is a good indicator of weather [sic] the MOS for that wonderful business is within reason?  Thanks for your time and your blog.  — Mark F., Rule #1 paper-trader

A:  The 52 week low is often used as a smoke-screen for knowing the value of the business.  Instead of finding out whether in FACT the business is on sale, salesmen and technical investors like to refer to it when making the case that the stock is likely to go up.  This is, of course, total nonsense.  The fact that the stock is at a 52 week low means absolutely nothing about its real value.  It may be worth twice that or half that.

Here's an example:  I want to sell you a car.  I've been trying to sell it for a year for $50,000.  I now drop the price to $30,000, the lowest price it's been for sale all year.  In fact, that is the lowest price I've offered the car for in the last five years.  Want to buy it?

Well, don't you think you ought to know what the car is actually worth before you answer that question?

Now go play! Phil Town