How much do you pay for shares?

[Tyler Durden]

Sorry, I know the question is framed oddly, and also, it is along the lines of "how long is a piece of string" type of question, but I just wanted to know, when you buy shares, what amount are you spending on them?

The comsec minimum of $500? Or $1,000? $10,000?

I only ask because I was listening to a Roger Montgomery presentation on the ASX site recently, and he said something about people having confidence in their analyses yet they weren't willing to put their money where their mouth is, and "only" buying $5,000 worth of shares.

I don't know about others here, but $5,000 is a lot to me. If I put $5,000 on a company, that is pretty damn good evidence of me putting my money where my mouth is.

 

[matth1]

Yeah, I suspect the answer depends a lot on personal circumstances, and is also dependent on the individuals appetite for risk.

However, I think the "correct" answer should be however much your position sizing equation tells you to!

 

[stu192]

Spot on Matt1. I use the following position sizing formula (which is probably used by lots of people)

no. of shares = (total capital * risk level)/(buy price - stoploss price).

As an example
buying CBA.

buy price $50
stoploss $46
total capital $100,000
risk level= 1.8%

would buy 450 shares ($22,500)

 

[Julia]

That was a particularly silly, unqualified statement by Roger Montgomery.

 

[burglar]

Good question TD,
When I buy parcels for less than $2000, the brokerage rules my trade.

I like to find around $3000 for a parcel!

Having said that, I find it increasing difficult since toasting my portfolio in 2009/10.

 

[ROE]

this depend on your capital position.

If someone has a million dollar buying 20K worth of shares in a company is nothing
to cry about 2% of their money ...

if you have 20K buying 5K worth of share in a company is hell of a lot of money
that 25% of your capital ....

I only ever invest in 15-20 companies at a time so if I have 1m in capital
each one would takes any where between 50K to 300K of my money
per stock... 50K toward the low end where I'm not sure and
300K would be a stock I have 90%+ confident it stands the test of time
and prosper ....

 

[skc]

My biggest positions can be a few hundred times larger than my smallest position. It's all about what you want to achieve, the risk and your total capital.

But i'd say fir the average person who know not what they are doing, $5k is certainly a meaningful amount. Probably around 6 months of disposal income after tax, essentials and basic expense.

 

[ENP]

I invest enough to make the brokerag 1% or less. E.g. $30 brokerage would mean I'd spend $3000 or more.

I save about 10k/year from my income, so this gives me a buying opportunity every 4 months or so. If I don't see anything I like to buy then I'll let my savings build up.

I think what Roger Montgomery was trying to say by putting $5000 or more into a single buy was that by putting more money on it, it forces you to think longer and harder about the purchase. Rather than just skimming over your research because you are only putting a little bit of money on it. If you lose some or all it's not a big deal because it's only $1000, $2000, etc. However, with the $5000 or more, the effect of you losing 10, 20, 50% or more of that $5000 ups the stakes and makes you look at every angle or the purchase.

Something you could compare it to would be the amount of time you spend choosing your bread at the supermarket vs buying a new house. Because the amounts of money are larger and the stakes are higher if you make a bad decision, you will look over the house, get opinions, do more research, compare your other options, etc.

If you make a bad decision on the bread, big deal, you only bought it for $3. However, if you made a bad call on buying the house and found out it had fundamental problems, the losses could be huge.

 

[Julia]

I think what Roger Montgomery was trying to say by putting $5000 or more into a single buy was that by putting more money on it, it forces you to think longer and harder about the purchase. Rather than just skimming over your research because you are only putting a little bit of money on it. If you lose some or all it's not a big deal because it's only $1000, $2000, etc. However, with the $5000 or more, the effect of you losing 10, 20, 50% or more of that $5000 ups the stakes and makes you look at every angle or the purchase.

It's meaningless to quote dollar figure, i.e. $5000. Use a percentage instead.
Obviously if your total available capital to invest is several million $5000 is hardly significant.
$500 might be a significant amount to some people. $100K might be insignificant to others.
Mr Montgomery should have the capacity to express himself more appropriately imo.