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dwot (99.57)

Average investment per stock?

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March 29, 2008 – Comments (7)

I was just reading a comment that said most people don't have $1000 to put into a stock.  I think $1000 is about the smallest amount I'd consider for any position simply because of fees.

Personally, I'd say reduce the diversification if the amount you have to invest is small enough that $1000 per stock isn't doable.  If I only had $2k to invest, I'd probably be looking at only one or two stocks to invest in and I don't care what anyone says about diversification.  The fees are guaranteed to hurt you when you have a small amount to invest.

I broke a lot of "rules" when I was active in the market, like putting too many eggs in one basket kind of thing, so if I felt really confident, I'd go up to 20%, but I didn't stick around for losses, I'd exit by 10% down and I was fortunate that I don't think a single one of my picks did cliff diving while I was in it.  A few did cliff diving after I was out of them, and given that I didn't see the cliff diving coming, I guess that's part of why I'm not in the market right now.  I think the probablity of cliff diving for stocks is way, way up. 

If any my stocks went under, I'd be spending hours checking them out further looking to see if I could find something I missed and I'd either exit or buy more  That falling knife thing, I wasn't paying too much attention to it, I did my homework and was confident.  I looked at that if it was a good deal at the price I originally paid, it was a better deal having gone down, or, there was a problem I need to find and exit.  I did manage to get myself into two that made me feel ill, and so I just exited to find calm.  

I guess about $1k was my smallest investment, and remains so. 

So, survey here, what is your minimum investment in dollars and maximum in percent of your profile for a single stock? 

7 Comments – Post Your Own

#1) On March 29, 2008 at 2:00 PM, Tastylunch (29.93) wrote:

Well I don't really have any hard and fast rules about diversification. I usually like to have 8-12 stocks (mainly due to hobbyist interest that a desire to diversify) which comprise at any given time 50-100% of my portfoilo. Right now would be an exception to that as I only have about 35% or so in long positions.

I very rarely ever put as little as 1K into a stock beacuse of comission and a position that small imho would lend my portfoilo to have too much diversification (I get uncomfortable with having more than 12 stocks). I will however only put 1k into a short. My father is more or less the same (expect he doesn't short stocks)

So the short answer to your question would be I have no minimum investment but in pratice than 4-5k per stock and there is no limit in terms of max % in pratcice I don't ever have more than 14-17% of my portfolio (which results typically from said stock's relative performance not initial investment) in any one stock.

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#2) On March 29, 2008 at 2:02 PM, Tastylunch (29.93) wrote:

man I really wish I could edit posts. I mispelled "practice" twice . ugh I really need to learn how to type correctly.

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#3) On March 29, 2008 at 2:37 PM, abitare (99.42) wrote:

I think your first $25k should be put into your own business. Whatever, that is. Snow blower, tree trimming, resume correcting, Web Design....what ever

If I recall correctly less then 16% of millionaires attribute their wealth to the stock market. 80% made their money in their own business.

Here is just a small list copied off Amazon about the Book Millionaire Mind:

·They are "Cheap dates," and don't spend a lot of their money

·They are balance sheet affluent - I loved this part. Basically, it states that so many people look rich but have so much debt they aren't rich. They just want to look rich. Most of these folks own their homes outright, drive cars for extended periods and don't spend lavishly.

·Most didn't inherit their wealth

·Most got Bs and Cs in high school. Ie. They aren't braniacs - 2.92 GPA

·Most own their own business, low-tech businesses that will be around for a long time. Ie. Not much product development, etc. Stuff like gas stations

·SAT scores between 1100 and 1190

·37% are deeply religious people who attend church regularly

·92% are married

·They have been with their first wife for an average 28 years

·They avoid the lottery and gambling

·They like to spend time with family and friends

·Integrity in business is their #1 priority

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#4) On March 29, 2008 at 2:45 PM, abitare (99.42) wrote:

I am aligned with Buffet. I do not believe in diversifcation for diversifiaction sake. I rarely buy Tech or Drug companies, because I do not understand the market and do not want to learn it.

Buffett on diversification: 

"The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it."- 1993 Chairman's Letter to Shareholders "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

 

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#5) On March 29, 2008 at 4:26 PM, MakeItSeven (33.19) wrote:

For a real position, I would put in at least 10K.  Sometimes I put a small amount in a stock just to keep track of it better.

Diversification ?  It depends on how correct you think you are.  If you're confident that you're 100% correct then you can put all your money in one stock that you think will give you the biggest profit.

There are also two different kinds of diversification.  One is what Buffett mentioned: long-term diversification, mainly to protect against big losses in the wrong investments.  Another kind is for short terms trades on a fairly large number of positions.  The diversification in this case is not as much to protect against losses but to provide flexibility for your account so you can enter and exit any positions at any time without ever getting short of cash when a good opportunity presents itself.

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#6) On March 29, 2008 at 4:45 PM, dwot (99.57) wrote:

Thanks for the great comments.

Tasty, I was investing my retirement funds which were tax sheltered so the only cost was the $10/trade and the exchange fees.  $1000 means about 1% in and 1% out.  I preferred about $5k.

The one class I was in the kids were playing virtual market and a couple figured out the fee per trade averaged down the larger the trade.  I saw one kid with 100% leverage to 300% in one stock.   Dang if he didn't double in about 6 weeks or something...  Of course, I think for many stocks buying or selling $300+k will move the price and the game doesn't.

abit, the looking better off thing certainly was enormous...

I tended to think understanding the stock you are interested in is a way better plan, as Buffett points out.  Certainly there are an enormous number of hidden things, so it can be difficult.

 MakeItSeven, I think owning companies outright like Buffett does is a great way to invest, they simply can't do the garbage so many companies do.

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#7) On March 29, 2008 at 6:21 PM, EverydayInvestor (< 20) wrote:

@abitarecatania: that book is and related findings on millionaires is misleading. Yeah, most of the rich got there by having their own businesses. However, a lot of people lose a lot of money doing that too. Does it increase the average return or just increase the volatility of returns?

@Dwot: I'm a big fan of diversification. Research has consistently shown that >80% of individual investors and money managers underperform the market, before taxes. After taxes, it is more like 95%. Most of them think that they are smart. Also, consider yourself lucky--plenty of people lost a ton of money being undiversified and making bad bets. I am a big fan of diversification, even when I am absolutely sure that I am right. For those with under $10k, they should just buy a couple broad-market ETFs.

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