I started my portfolio and it has a total value of $2500. I own 6 stocks and they are in the sectors: tech, financial, industrial, healthcare, and REIT. My goal is longterm growth and dividend growth. I think I should sell off 2-3 shares and add that money to the ones I will keep. The amount I have in my eyes isn't worth holding 1 share of a large healthcare stock when I can hold 5 shares of a smaller one.
This is a common mistake made by most new, or beginner traders. The amount of shares means absolutely nothing, what matters is the % return. Here's an example in 2 different stocks below: Stock ABCD is $100/share and you have 1 share. The stock goes up 10%, you now have $110 Stock WXYZ is $10/share and you have 10 shares. The stock goes up 10%, you now have $110 The point being that you will have made the same amount of money no matter which option you chose. It's a very common misconception that a lot of newbie traders make that you need to have a lot of shares in something to make money. I'd rather have 1 share in something that I bought at $100/share and it's now $150, than have 10 shares of something that I bought at $10 but it's only up to $11 now.
The answer depends on your philosophy. My philosophy indicates you own 5 too many stocks. I would buy one well distributing stock and set it up to drip. From there, I'd save up another $2500 and do it again, perhaps with a different stock. Your scale is too small to re-invest outside of a drip. You will be paying way too much in transaction fees. The thing about a drip is that you end up with compounding returns, as every month or quarter you have more shares distributing to you. It can make a significant difference, in the case of a monthly distributing equity. If your not interested in drips, compount interest, or value stocks... If you are focussed on growth, like pretty much everyone (other than me) is, then the scale won't matter too much, although you've paid $50 pore in transaction fees than you might have and that will make a major difference at your scale. You'll pay an extra $50 to sell, too.
Transaction fees are a good point, but he mentioned he's in it for the long-term so they are far less important. It also depends on who his broker is and how much he's being charged. There's nothing wrong with diversifying your portfolio, but maybe with $2500 you should diversify just a little less than 6 stocks. It really just depends on your goals though, how much you believe in each investment, and how risk-averse you are.
I don't wish to be defensive so this isn't directed at T0rm3nted. T0rm3nted has a good point of view that I do not disagree with. This is directed at the OP. Again, my philosophy is the road less traveled so go ahead and discount it. I started with $2400, in 1986. I owned a single stock. My math shows me that holding less than $2000 of a stock is inefficient, so I've never done so. These days, I invest in much larger increments. I've read others share the $2000 minimum, as well. I suspect we all arrived at it with the same calculation. $2000 to invest. $10 fee to buy. $10 fee to sell. That's $20 for both sides of the transaction or 1% overhead if you get in and out quickly. The actual overhead is 0.5% plus whatever percentage $10 accounts for at time of sale so it could be more or less than 0.5%. If the stock appreciates considerably, the transaction overhead is reduced but it will never go below 0.5% and that would be a considerable MER, for someone investing in mutual funds. The next point is that I only own stocks that I know. I don't know a ton of companies. It takes considerable work to research a company and even just following news and events for a company can take considerable time. I'll bet I spend 2.5h per week just following Tesla. I read the financial statements. I listen to the earnings calls. I follow most of the news. I try to estimate the cobalt ratio of the batteries on a quarterly basis. It takes time and I am this in depth for quite a few companies. It's not a numbers game with me. It's not random. I look for honest, hard working companies that are smart (in that order of importance) and I partner with those companies. I enjoy owning them. When prices stumble, selling doesn't cross my mind. I think about buying more. A price dip is a discount purchase to me. Again, it's all down to the philosophy.
No offense taken, and I don't disagree with you either. My only concern with investing all $2.5K into 1 company is if you are not a financially responsible person who is good at controlling your emotions, you can "get addicted" to the potential huge gains by keeping all of your money in 1 stock. The idea of diversifying is important to MOST people because you aren't putting all of your eggs in one basket. I think it's important to train the same way you'll play (as they say in sports). If you get in the habit of putting all of your eggs in one basket and are not good at controlling your emotions, it can go wrong - very wrong. I like the $2K minimum though for sure once a person has more money. If you're using Robinhood early on for example, diversifying is free, as there are no transaction fees. That probably changes your whole opinion on the position. To be clear - I'm not trying to "argue" with you, I think you've made some real good points and I'm enjoying the back and forth discussion . It's really just dependent on a few things: Size of portfolio Emotional control Transaction fees
Several points. - For growth stocks using the Robin Hood brokerage, there is no trade inefficiency associated with buying multiple stocks, versus one. We are in complete agreement. - For dividend stocks, the penalty is significant and it will cost him the entirety of the compounding of his dividend. For example: Let's say Largestacks buys 90 NWH-UN.TO at current market (11.35). This position is valued at roughly $1020. This stock will distribute $6 monthly to his account. Any synthetic DRIP he has configured will not result in additional shares being purchased and, therefore, will not compound. He will be stuck with simple return. At the end of the year, he would have 90 shares and $72 in distributions. This is a gain of 6.46%. At this rate, it will take 11.14 years to double the initial investment, assuming 0% price gain. If Largestacks were to put all of his money into NWH-UN.TO, he would have 220 shares. These will distribute $14.67 per month. If he has it configured to DRIP, he will receive one additional share per month plus $3.50. At the end of the year, he can be expected to have 232 shares and roughly $42 in cash. This is a gain of 7.06%. At this rate, it will take 10.19 years to double the initial investment, assuming 0% gain. To some of us, this small difference matters. There is also the granularity efficiency of the DRIP that can be considered. If he had $10,000 to invest in the same NWH-UN.TO, he would gain 7.21% in the first year with the time to double now at 9.98 years. These numbers also assume 0 growth of the market cap.
I will add, for non-DRIPping stocks, I prefer to buy in board lot increments but this won't be practical for Largestacks. Buying non-board lot quantities will typically result in being one of the last to fill at a given price point, as traders tend to prefer board lot increments. If you're trolling for a lone market sell order as I frequently do (submit a buy order well below the current bud/ask), you will have a much higher likelihood of having the order filled if it is a board lot quantity. If it is a board lot multiple, plus a remainder, there is a good chance you will get the board lot multiple with the remainder going unfilled.
Lastly, I would suggest that diversification dilutes research. If I know a ton about one particular company so I buy it but also buy some other companies about which I know less, I've just diluted the research by adding in less known companies. If my research is good, I will have increased my risk by adding lesser understood equities. I would argue diversification is not a substitute for research. If someone is not doing research, they should buy an index. Again, just my point of view. I encourage dissension and look forward to learning from other points of view.
Thank you all for the responses. The brokerage I use is robinhood so the fees are free except there is no drip which is unfortunate. What most of you are saying is what I plan on doing, I want to buy companies that I know and continue to add equity in them as they correct themselves overtime for a good appreciation and dividend payment. I understand it doesn't matter the amount of shares but rather the percentage the stock grows, but I feel that my capital is too low to invest in large priced companies so I feel I should nit pick the smaller priced well valued companies. So wouldn't it be better to have less companies while sacrificing some diversification for growth in those well valued companies?
How do you know these are "well valued companies"? If you're a value investor and believe in your ability to value companies, you don't need us. If you were to share your techniques for valuing companies, it would be appreciated. I don't care to share mine, so I apologize in advance for not being able to reciprocate.
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