Minimum investment in any one stock?

[Semillon]

I am just wondering what people consider to be the minimum it is worthwhile investing in any one stock / transaction such that the overheads involved do not eat away at any potential returns.

I have seen it hinted in other threads around $2000-2500 to be about right, however I could not find anyone specifically asking this question.

 

[beamstas]

How long do you want to hold?

Anything down to $500 could be fine for a long term approach
But if you are scalping you don't want comms to be more than 0.1%

 

[Semillon]

How long do you want to hold?

I feel under most circumstances, > 1 year

 

[skyQuake]

Try to keep the parcels large enough so you won't get killed on brokerage. ASX min order is $500, but recommends around $2k.

 

[KurwaJegoMac]

The smallest amount I've invested is $1,000 which I held for about 2 months for a return of about 15%.

I know that's not a huge return compared to what others achieved, but I'm still new to this (Started learning about the sharemarket about 8 months ago).

On the other hand I've invested $1,500 in a couple of trades which have barely gone up by 1% in the last 4 months.

I guess it comes down to your style of investing and experience. If you're holding for a while, there's no reason you can't invest as little as 500 - you just need to work out how much your total brokerage is and then see how much of a return you would need to cover brokerage and return a profit.

Let's say your buy sell brokerage is $30 - therefore your total trade will be $60 (30 for when you buy, and 30 for when you sell)

If you were to invest say $500, you would need to sell at a minimum gain of 12% just to cover brokerage costs of $60. Let's say you get a gain of 20% - this will yield you $600, which, less brokerage, leaves you with $40 profit (pre CGT tax).

Not a large sum of money true, but look at the gain needed to get it: 20%. So you need to ask yourself if, based upon your experience, trading strategy, timeframe and risk management, can you get a 20% return or greater in order to make the trade worthwhile? (NOTE: This 20% gain relates to the $500 example only)

So you need to sit down and have a look at what is an acceptable return for you, given your personal circumstances and you can then determine what is the best minimum for you.

Either way, even a small amount is beneficial as you'll learn a lot about the market just by 'having your skin in the game'. Even if you lose it all (i hope you don't) the lessons you'll learn from it will be invaluable.

Best of luck.

 

[beamstas]

You really need to be with IB if trading such small parcels
$6 e.w kills Bell Directs $15 and Commsucks $20

 

[skyQuake]

Disagree slightly with throwing all ur money into 1 stock early on.

What happens is you will either love/hate that stock and follow its movements like a maniac. You'll learn a bit about that particular stock and miss out on a whole lot more.

You may also fall in love with the stock and try to read into everything that happens. (See FMG thread for some lessons)

IMO better to paper trade for a while before dipping you toes in, get a wider breadth of experience.

 

[The_Bman]

I would apply some simple money management:
- What is your total available cash
- What is your maximum risk (loss) per position (Including Brokerage x2)

Then if there was an entry trigger, evaluate the potential return vs loss. If the return to loss ratio is too low (gauged by risk appetite) don't trade.

This may mean keep saving.

I would also consider a point of ruin and hold the number of positions accordingly. I.e. Have individual stops and collective stops; this saved me fist fulls of $ last year.

 

[kam75]

I am just wondering what people consider to be the minimum it is worthwhile investing in any one stock / transaction such that the overheads involved do not eat away at any potential returns.

I have seen it hinted in other threads around $2000-2500 to be about right, however I could not find anyone specifically asking this question.

It all depends on a number of things. Money Management is one of them, and THE most important. The other is how much are you happy to lose. And thirdly what it is that you're trying to achieve.

 

[Nero64]

I use $5000 for good long term stocks that meet my fundamental and technical requirements. Sometimes I may sell if I get 10%-15% profit in a few days.

For speculation stocks I put in $2500. ie less than $1.

I use commsec for brokerage and may buy a stop order to lock in profits.

Still hold some dogs and haven't gone fully over to an expectancy based system, but plan to and then switch to IB for the $6 commissions.

 

[jono1887]

I put in 10k for most stocks and 5k for speculative stocks... as i have to pay $20 each way for brokerage. if you trade with too little you'll need extremely large gains just to get past the brokerage.

 

[Semillon]

I use $5000 for good long term stocks that meet my fundamental and technical requirements. Sometimes I may sell if I get 10%-15% profit in a few days.

For speculation stocks I put in $2500. ie less than $1.

I use commsec for brokerage and may buy a stop order to lock in profits.

Still hold some dogs and haven't gone fully over to an expectancy based system, but plan to and then switch to IB for the $6 commissions.

Thank you for the reply, this is useful information.

Out of interest, what do you consider "long term" to mean?

Do you have any references to what an expectancy based system means?

 

[kolothuk]

I'm pretty new to investing in shares myself. One important lesson I've learned is that everyone has different reasons for buying a certain stock.

In the case of myself, I'm still pretty young at 24 and the main priority of me and my partner is saving to buy our own home. However, in our home budget we each have our own small leisure budget to buy personal things for ourselves eg. such as DVD's, clothes, music etc.. I tend to not really be much of a consumer so I have begun buying parcels of shares at $1000 a time every few months from my unspent leisure money.

Why did I pick $1000?

• I'm with commsec which currently has free brokerage for a few months but assuming brokerage is in total $40 ($20 buy and $20 sell) thats about a cost of 4% on the initial investment. A years dividend yield should could cover the brokerage for good long term stocks.
• Anymore than a $1000 means I will be saving for a longer time. Buying stock regularly every few months with my leisure money means I stay interested (its part of my leisure) and don't waste it on some silly purchase that will end up in the bin a few years down the line.

My strategy is long term (5 years and beyond), so I'm not really aiming to sell anytime soon.

 

[Julia]

I find all of your above references to dollar amounts fairly meaningless.
It depends on the size of your available investment capital.

If you have e.g. $1M, then you'd be pretty silly to stuff around with $2000 per trade.

More meaningful to talk in terms of percentages, isn't it?

And personally, I wouldn't ever set a hard and fast percentage to be placed in individual stocks. If I think something is up for a good run up I'll put more into it.

 

[jono1887]

I find all of your above references to dollar amounts fairly meaningless.
It depends on the size of your available investment capital.

If you have e.g. $1M, then you'd be pretty silly to stuff around with $2000 per trade.

More meaningful to talk in terms of percentages, isn't it?

And personally, I wouldn't ever set a hard and fast percentage to be placed in individual stocks. If I think something is up for a good run up I'll put more into it.

I guess your right... in that case most of my trades make up 30-50% of my capital (it was at 100% at one point). I know its quite risky but i only buy when im very certain and its gone well for me so far.

 

[Semillon]

I find all of your above references to dollar amounts fairly meaningless.
It depends on the size of your available investment capital.

If you have e.g. $1M, then you'd be pretty silly to stuff around with $2000 per trade.

More meaningful to talk in terms of percentages, isn't it?

And personally, I wouldn't ever set a hard and fast percentage to be placed in individual stocks. If I think something is up for a good run up I'll put more into it.

For an individual with say $5000-10000 starting capital, placing a floor on the amount you would spend on any one stock makes sense to me. Its a matter of balancing diversity on the one hand vs overheads on the other.

Given that this is the beginners forum, I think its unlikely anyone asking questions in here has a cool $1M burning a hole in their back pocket, "stuffing around" with $2000 might be a big deal to some people.

 

[cutz]

For an individual with say $5000-10000 starting capital, placing a floor on the amount you would spend on any one stock makes sense to me. Its a matter of balancing diversity on the one hand vs overheads on the other.

Given that this is the beginners forum, I think its unlikely anyone asking questions in here has a cool $1M burning a hole in their back pocket, "stuffing around" with $2000 might be a big deal to some people.

Semillon,

What are we talking about here ?

Are you looking at a long term investment in stocks, investing a couple of grand in each for the future?

Or are you looking at stuffing around with a couple of K short term trend trading.

 

[Julia]

For an individual with say $5000-10000 starting capital, placing a floor on the amount you would spend on any one stock makes sense to me. Its a matter of balancing diversity on the one hand vs overheads on the other.

Well, of course. But why wouldn't you express it as a percentage of your total invested capital? No one has specified, as far as I can see, a starting capital of any particular amount.

Another example would be if you said: "I made $2000 on stock XYZ after six months".
Well that might be good if your initial buy price was $500. But it wouldn't be so great if your purchase price was $1800. If you express it as a percentage then everyone immediately knows what you mean. Do you see what I'm trying to explain?

Given that this is the beginners forum, I think its unlikely anyone asking questions in here has a cool $1M burning a hole in their back pocket, "stuffing around" with $2000 might be a big deal to some people.

Not necessarily. You could have someone who has had many years of investing in property deciding to venture into shares for the first time. Could have large amount available.

 

[beamstas]

Another example would be if you said: "I made $2000 on stock XYZ after six months".
Well that might be good if your initial buy price was $500. But it wouldn't be so great if your purchase price was $1800.

Making $2000 on a $1800 purchase is not good? 210% return!

Sign me up Julia!

:chimney
:bier:
:knightrid

 

[Semillon]

Semillon,

What are we talking about here ?

Are you looking at a long term investment in stocks, investing a couple of grand in each for the future?

Yes, long term investment - initial capital of say 15-20k