Tony - someone pointed out to me in a private message that the first sentence in my posting was harsher than it needed to be. I agree and wanted to apologize. We all have different investing styles and rules we follow. You are entitled to yours. The "100 share" lot purchase is one I disagree with largely because it leads small investors to select from lower-priced stocks in order to buy a whole lot, when the emphasis of any investor should be selecting the best stock regardless of the current share price. I just wanted to point out that following this rule, Rand would have missed out on the growth of some of the best stocks over the past year. If this is the case, then perhaps the "100-share lot" rule needs to be rethought or discarded.
For example, take the present case. Following your advice, Rand would now put $10k into a mutual fund, and the other $10k into 2-4 stocks. This means between $2,500 - $5,000 for each stock. In order to buy a 100-share lot of two stocks, this means the universe of stocks currently priced over $50/share is completely off limits. In order to buy a whole 100-share lot of four stocks, this means the universe of stocks currently priced over $25/share is off limits. So, this rule is telling Rand not to buy some of the best companies in the world - companies like GE, MSFT, INTC, CSCO, GPS, MDT, LU - just based on the current share price. In my opinion, any rule which eliminates these companies or other similar companies from consideration isn't a very good rule to follow.
To debunk some of the myth of investing, novice investors would be wise to check out the free investment course at the IBD website at investors.com, including the 18 Common Investor Mistakes, and the Motley Fool website at fool.com
Happy New Year to everyone. |
