How to Best Invest $1,500: Go Cheap or Go Big?

When a stock craters relentlessly from such heights over the course of many years, there's generally a reason. It's not market manipulation. Nor is it a scenario where a gaggle of permabulls gets it, while the rest of the world wanders around in a clueless stupor. Beware of the notion that some set of external forces created not only the decline, but the persistent stagnation in a stock that fell from grace.

Several purely psychological factors drive us into these types of stocks absent any remotely rational reasons for going long.

Our minds often pull a George Costanza on us -- It's not a lie if you believe it. To justify taking a shot at easy riches, we make ourselves believe anything. We buy what the pumpers sell because we want it to be true. In the end, we're usually left asking ourselves Is a dream a lie if it don't come true or is it something worse?. Some folks never learn.

Because of some combination of X, Y and Z, it simply cannot go any lower! We hear that line in relation to ALU, FTR and SIRI as well as dogs ranging from Research in Motion(RIMM) to Radio Shack(RSH) . It can't go lower because of book value, cash, refinanced debt, valuable patents or the prospects of a merger or acquisition.

No union of the above-mentioned represents an investment case. That's what I attempt to drive home when I compare Nokia and RIM. The bull case for RIM is shallow, generally containing many of the preceding reasons why "it can't go lower." Yet it always does.

While it's perfectly sane to think Nokia is doomed as well, I am long because I consider it distinct from RIM. The company made the difficult decisions RIM either refused to make or has yet to even truly consider. If my speculative bet on NOK plays out, it will be fantastic. If it doesn't, I will hardly take life-changing lumps. I went small. And I can look back on the investment knowing that I went into it of sound and rational mind.

Too often, we listen to the shallow arguments bulls make for a low-priced stock and we let what I like to call the"lifted skirt and perfumed inner thigh" of small numbers draw us in. It has quite the allure. A $1.50 stock is akin to a lady of the night staring seductively from across the bar.