Low-priced stocks are an integral part of the investment dream. We've all fantasized about buying a stock in the single digits and watching it soar.

However, many times, investors never realize this dream.

For a variety of reasons, investors often buy low-priced stocks and then sell them at even lower prices. This common practice is indeed curable.

There are simple answers to the mistakes investors make when dealing with low priced stocks. Most of the time, you already know what the answer is; execution is difficult. I want to share some of these common problems and provide you with solutions so you can become a better investor.

Beware of buying the bottom

Everyone wants to get something for nothing, and if you can't do that, then paying as little as possible is the next best thing. I mean let's face it, who wouldn't want to buy at the 52 week low and then sell at the 52 week high?

The problem is that sometimes the bottom you see is not a bottom at all. Often, a stock that makes a new 52-week low is not a stock you should buy. The market tells you that when this stock appears on the list of 52-week lows, it keeps getting lower and lower in value.

Bottom feeding is good for some species, but investors who want to see good returns in a reasonable amount of time should avoid stocks at "perceived" bottoms. Always look for confirmation that a bottom has been entered and that the stock is recovering.

Adjusting your risk profile

Buying low-priced stocks can sometimes seem like a risk-free or very limited risk venture. How much lower can a stock go when it's in the single digits? The answer to this question is always the same.

Any stock can fall 100% from the previous day's closing price. This rarely happens, but the point is that you have to think more about the percentage than the stock price. A $7 stock that goes to $3.50 is a 50% loss, which is an unacceptable number.

The solution to this problem is to adjust your positions. You must know how much of your portfolio should be dedicated to lower-priced stocks, rather than putting all your eggs in one basket. This is a problem unique to each investor because everyone has a different amount of investable dollars and most people have different time horizons. Properly sizing your position will allow you to withstand short-term losses and encourage long-term success.

More . . .

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Zacks is now disclosing its most compelling picks priced below $10 per share (but probably not for long). These quality companies are expected to earn as much as 2X or more. Most recently, our suggested closing returns have been +108.6%, +110.4%, +393.8% and even +995.2%. ¹

These stocks offer the best of both worlds: immediate growth potential and a strong potential for long-term profitability.

The special opportunity ends at midnight on Sunday, March 13.

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Don't double down

Many investors believe that the stocks they choose are destined for success. I mean, they did their research (which may or may not be sparse) and came up with the idea, so it probably has some merit, right?

This confirmation bias causes many investors to double down on a bad idea. When an investor buys a stock at $8 and then doubles down at $6, the problem only becomes bigger when the stock drops to $5. Now you have more than twice as many stocks losing more money on each trade

The discipline of reducing losers and letting winners run is a difficult problem for even the most experienced professionals to solve. Evaluate how much you can afford to take on a pullback and stick to those limits. Often, low-priced stocks have a way of literally falling out of bed when they get into trouble …… and no one wants that.

The best advice for making big profits with low-priced stocks

Be patient with your investments. Low-priced stocks usually take more time than their bigger brothers. A healthy dose of patience will go a long way for low-priced stock portfolios.

Use the Zacks Rank to help find stocks that analysts think are making more money. The Zacks Rank looks at all of the corrections to the model's earnings estimates from covered analysts and compares them to all stocks in the Zacks coverage universe. When analysts at Needham or William Blair bump up their numbers, Zacks Rank helps you see when an estimate increase makes the most sense.

Assessing risk is a daunting task that only you can do. One way to limit risk is to decentralize it to a few low-priced stocks. Instead of going "all in" and buying 10,000 single-digit shares, decenter it into a few names. A larger portfolio will decenter the risk into multiple names, which gives you a better chance of success.

Position yourself for profit immediately

One of the easiest ways to avoid costly mistakes and make significant profits with single-digit stocks is to look at the recommendations we hold in our portfolios.

We focus on companies that are poised for significant upside. We enter when the Zacks Rank and other proven metrics point to future success, and take them to serious growth. For example, we have recently closed positions with gains of +108.6%, +110.4%, +393.8% and even +995.2%. ¹

Now is a good time to look into our sub-$10 stocks. On Monday morning, I will add a new pick to the portfolio and you can be one of the first few to see it. It can easily take off from the "under $10" category soon.

Starting today, you are also welcome to download our just-released special report on the 7 best stocks for the next 30 days. From our verified list of 220 Zacks #1 Power Buys, our team of experts handpicked these 7 for immediate breakout.

But please note: Your opportunity to download this bonus report will end on Sunday, March 13.

Best of all.

Bryan

Brian Bolan is our active growth specialist and portfolio editor.

¹ The results listed above do not (or may not) represent the performance of all picks made by Zacks Investment Research newsletter editors, and may represent partial closings of positions.