My mother and father love an excellent storage sale…
They present up an hour early and take their time to look every thing over.
My father gained’t hesitate to give you $1 for that $10 toaster.
He’ll barter with you till you decide on two bucks.
Then, he’ll whip out a crisp $100 invoice and ask when you’ve got change!
Each every so often, he scores big.
Although it’s often on the finish of the day when the vendor simply desires to be accomplished, and $100 gadgets are going for $5.
Positive, I discovered my dad’s haggling a bit exasperating.
However immediately, I usually discover myself doing the identical factor within the inventory market, the place $100 shares usually promote for lower than $5.
And that $5 is the magic quantity.
As a result of again in 1992, the SEC created a rule round “$5 shares” that unintentionally gave Principal Road one in all its few benefits over Wall Road.
It’s a loophole which you could exploit immediately, repeatedly, for market-beating income.
Once more, this was all an accident.
You see, 30 years in the past, the SEC observed that there have been far too many pump-and-dump schemes with low cost shares.
Assume Wolf of Wall Road and boiler room eventualities the place an aggressive salesperson is pitching a $1 inventory.
And sure, the SEC was right. There was a giant downside with these pump-and-dump shares.
So that they created a rule to cease the issue: SEC Rule 3a51-1 — or the “Penny Inventory” rule.
This rule said that any inventory beneath $5 is taken into account a penny inventory.
They declared that these penny shares had been speculative. That massive establishments and funds mustn’t commerce them as a result of they may transfer the value an excessive amount of with their billions of {dollars}.
So these shares are off-limits … to the massive corporations.
That’s the rule.
These funds have an obligation to take a position their buyer’s capital into sound investments, not speculations.
Nevertheless it’s a foolish rule.
Why?
As a result of the value of a inventory says little or no about an organization’s precise well being.
Let me clarify…
Say you’re the CEO of an organization and wish to elevate $1 billion by promoting shares.
You possibly can promote 1 billion shares for $1 every … or 10 million shares for $100 every.
Both method, you elevate $1 billion.
But within the eyes of the SEC, that $1 inventory is “speculative,” whereas that $100 inventory is “protected.”
Once more, that’s foolish.
It’s like Yogi Berra as soon as quipped: “You higher minimize that pizza into 4 items as a result of I’m not hungry sufficient to eat six.”
The dimensions of an organization is the pie.
The shares are merely the scale of the slice.
However there’s an arbitrary cutoff for Wall Road buyers. It’s primarily based on the value of a share, not the overall measurement or high quality of an organization.
It’s as Ronald Reagan mentioned: “For those who assume the issues we create are unhealthy, simply wait till you see our options.”
And but, we should always thank the federal government for such a foolish resolution!
As a result of SEC Rule 3a51-1 is an enormous reward to you and me.
Whereas massive Wall Road corporations are barred from investing in shares priced beneath $5, YOU ARE NOT.
Positive, your dealer is required to inform you that the inventory is speculative and urges warning, as they need to. However you aren’t banned from investing in these $5 shares.
Subsequently, it’s a rule that lets Principal Road buyers in, whereas protecting massive cash out.
And that’s actually a beautiful factor for you.
The “$5 and Underneath” sector is among the few locations the place Principal Road has unfair benefit over Wall Road.
As a result of in the end, it’s a loophole within the system.
A glitch.
An anomaly.
You can get in beneath $5. They can’t…
Till that inventory trades over $5.
As soon as that occurs, the massive Wall Road corporations with their billions of {dollars} can lastly scoop it up.
And what occurs to a inventory when billion-dollar funds begin pouring cash into them?
The inventory soars increased.
That’s why shares shifting over $5 could not cease going up till they’ve gone to $10, $20 or $100.
Apple.
Amazon.
Tesla.
These had been all as soon as “penny shares”…
Till they weren’t.
Till they soared over $5 and saved marching increased, making buyers nicely over 10,000% positive factors.
Are you able to see why $5 is actually a magic quantity?
This “$5 rule” creates 10,000% alternatives for you and me.
And immediately, January 29, is a superb time to put money into these $5 shares.
Why?
First, as a result of over the previous few years, lots of $100 shares have dropped beneath $5 — lots of of corporations.
Second, whereas the S&P 500 has been hitting new highs, the Russell 2000 Index (small-cap shares) remains to be down 20% from its highs.
That’s the most important drawdown that small caps have had relative to the S&P 500 at an all-time excessive.
Following the three prior document drawdowns, small caps went on to outperform large-cap shares.
With that mentioned, purchaser beware.
Many of those shares are nonetheless rubbish. They aren’t value $5 … not to mention $0.10.
However some are actually nice corporations, like $100 gadgets bought for $5 at a storage sale.
(I’ll present you the best way to type out the great from the unhealthy in a second.)
The perfect cause why immediately is a superb time to purchase these $5 shares is as a result of we’re coming into a brand new bull market.
Again in November, shares lastly rose 20% from their lows. That marks a brand new bull market, and on common, these bull markets final for over 5 years.
Right here’s what’s attention-grabbing.
Within the first three years of a bull market, the $5 small-cap market outpaces the large-cap inventory market…
100% of the time.
So investing a few of your cash into this $5 inventory enviornment is a large alternative for you.
That’s what I’ve been doing with my private portfolio.
As I discussed earlier this month, my high funding thought for 2024 is Wrap Applied sciences (Nasdaq: WRAP).
I wrote about it when shares had been buying and selling at simply $2.80. Since then, they’ve already run to $3.80. You may get the total write up right here.
However that’s simply one potential massive winner within the $5 inventory world.
To search out extra, I’ve turned to Banyan Hill’s resident professional in these $5 funding alternatives, Adam O’Dell.
Adam created a system to seek out the hidden gems of $5 shares which are about to soar increased.
As an illustration, in April 2022, amid the throes of the bear market, Adam found IMARA Inc.
Shares of this biotech firm soared 460% in 10 months, culminating with their acquisition by Enliven Therapeutics (Nasdaq: ELVN).
Terns Prescription drugs (Nasdaq: TERN) was one other massive winner, hovering 623% in 9 months, following its look on Adam’s radar in Could 2022.
And Meihua Worldwide Medical Applied sciences (Nasdaq: MHUA) soared 1,276% between July 2022 and January 2023 — a interval of simply seven months.
These are simply a number of the corporations which have confirmed up on Adam’s 10X Shares system, which regularly scans the complete market.
On this video presentation, Adam provides you the total particulars on how he finds the proper shares, in the proper mega development, on the proper time … and manages to seek out them after they’re buying and selling round $5.
With low-priced shares at a historic level the place they’re prone to trounce the market within the subsequent few years, figuring out the perfect low-priced alternatives immediately is essential for rising your wealth sooner or later.
Once more, this “$5 Rule” has created a number of 10,000% alternatives over the past a number of a long time.
And issues are actually heating up now.
Aaron James
CEO, Banyan Hill, Cash & Markets
