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! :o

: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

[cutz]

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

G'Day,

If that’s the case i see nothing wrong with it (small amounts), it's probably a good way to build a portfolio over the next few years. And there’s nothing wrong with building it in lots of 2K, or whatever you’re comfortable with.

Short term trading on the other hand is a different kettle of fish; you need to start with a big account, 2K lots is asking for trouble.

[jono1887]

G'Day,

If that’s the case i see nothing wrong with it (small amounts), it's probably a good way to build a portfolio over the next few years. And there’s nothing wrong with building it in lots of 2K, or whatever you’re comfortable with.

Short term trading on the other hand is a different kettle of fish; you need to start with a big account, 2K lots is asking for trouble.

The problem with dealing with 2k lots is that $20 brokerage each way is already 2% of your capital. So if you sold at a 5% profit, you're practically giving your broker 40% of your profits!!

[cutz]

The problem with dealing with 2k lots is that $20 brokerage each way is already 2% of your capital. So if you sold at a 5% profit, you're practically giving your broker 40% of your profits!!


Yeah but we have established that Semillon is building a portfolio for the long term, refer post #20, so in that case $20 brokerage isn't a big deal.

[kam75]

How much stock to buy is called Position Sizing. Correctly sizing your positions is one of the most important areas of trading as it affects both diversification and money management.

You also have to work out your breakeven level to ascertain whether your trade is even viable. The less you buy, the more the stock will have to rise in price in order for your trade to b/even. And likewise as has already been said, the more brokerage you pay (each way remember), the more that stock will have to move.

Some factors that determine how much stock to buy include -

1. the ratio of risk to reward for the trade
2. risk tolerance of the trader
3. trading account size
4. current market exposure
5. free equity

[cutz]

I thought Semillon was asking about minimum size on each position for a long term portfolio. So what has the ratio of risk to reward for the trade, the risk tolerance of the trader, trading account size, current market exposure, free equity position sizing, and brokerage got to do with it.

So he/she can set up a commsec account fund it with 15-20K then spread it around on some top 10 stocks, then set a stop loss on each at 1% or 2% of portfolio (if he/she is that way inclined).

I don’t think we’re talking about intraday trading or weekly swing trading here. Refer to post #20.

[Semillon]

Cutz has pretty much hit the nail on the head, I am planning to start out later this year with around 15-20k looking to invest for the long term. The capital I have available is likely to grow by around 15-20k each year thereafter, plus any dividends from the existing portfolio.

You have to start somewhere, and sinking the first years capital into a single company seems foolish, so I was wondering how many companies I should look at based on what is a feasible minimum you could invest in a single trade.

At this stage I feel that around $2500 is a feasible minimum for my circumstances, though I may bump it up to $4000 and look at 5 companies from different sectors for year 1.

[snowking]

Semillon,

I recently invested just under $15000 in the stock market. My minimum investments were all above $2000 except for the $900 i got from Kevin which i bought some penny stocks with.

I intend on holding for the long term, I would say 5 years minimum and i will look to add to my current portfolio when the circumstances allow. I have some spare cash now that I can use for further investments if the market corrects again.

snowking

[Semillon]

Thanks Snowking, nice to hear from somebody in a similar situation :)

Have you found any useful resources online for long-term investment strategies? Much of the discussion on this forum appears to lean toward short term trading rather than long term investing...

[snowking]

unfortunately most of the internet discussion forums like this one seem to focus on trading short term from what i have found. i guess talking about long term share holdings isnt that exciting :)

[RamonR]

Thanks Snowking, nice to hear from somebody in a similar situation :)

Have you found any useful resources online for long-term investment strategies? Much of the discussion on this forum appears to lean toward short term trading rather than long term investing...

It will probably be bagged as a strategy because it is so simple but my long term investing approach is to build a portfolio which is positively geared.

I only buy stocks which pay good dividends, including all recent dividend downgrades my over all portfolio is returning 8.3%

Borrowing costs are running around 5.2%

[Semillon]

It will probably be bagged as a strategy because it is so simple but my long term investing approach is to build a portfolio which is positively geared.

I only buy stocks which pay good dividends, including all recent dividend downgrades my over all portfolio is returning 8.3%

Borrowing costs are running around 5.2%

Makes perfect sense to me, you must be very happy to be getting such a return in the current climate.

[jono1887]

It will probably be bagged as a strategy because it is so simple but my long term investing approach is to build a portfolio which is positively geared.

I only buy stocks which pay good dividends, including all recent dividend downgrades my over all portfolio is returning 8.3%

Borrowing costs are running around 5.2%

How do you find out the dividend returns for companies?? Alot of companies have significantly reduced their dividends this year because of reduced profits, so which companies are currently still relatively high yielding?

[RamonR]

, so which companies are currently still relatively high yielding

Telstra seems to be currently.

My overall return is nicely skewed by CCV and FXL which I bought at prices which represent a 10.7% and 13% return

[jono1887]

, so which companies are currently still relatively high yielding

Telstra seems to be currently.

My overall return is nicely skewed by CCV and FXL which I bought at prices which represent a 10.7% and 13% return

but how do you get this information?? is there any website that has all the dividend returns for asx companies?

[SoBadAtTrading]

For me, the minimum investment amount depends on the brokerage fees/%. The cheapest here is $30 and I would try not to pay more than 1.5% brokerage so min investment would preferably be >$2000. Through IB, the brokerage is $12 so, min investment is considerably lesser, i.e. <1000.

US stocks are relatively cheaper to invest in though. For a USD 500 investment, the brokerage is only USD 2 which is 0.4%.

[SoBadAtTrading]

but how do you get this information?? is there any website that has all the dividend returns for asx companies?

It's in the AFR under dividend yield column.

[RamonR]

but how do you get this information?? is there any website that has all the dividend returns for asx companies?

I use etrade, so within etrade i have created a custom view and this contains div yield.

[Uncertain Times]

This has turned into an interesting discussion about the medium to long term investment. I don't think you can lock away all stocks for a period of time and expect the dividends to roll in. You still need to keep an eye on them to see what the market thinks of certain things happening within the company, local economy, world economy, etc. Sure the dividends might pay your interest on your loan but if you don't keep an eye on things you could have half of what you started with due to the price falling.
For example this time lat year you bought RIO at $149.52 per share. Dividends are good and looking good going forward. However current price a year later is $64.44 and you would be down $85 per share. How long will it take to get back to that level?
Hopefully this is the low point in the market and they are undervalued and you are getting in at the right time but short, medium or long term needs constant attention.
I am no expert and would probably be considered quite a noob. This is however something that I am very interested in and I am prepared to turn this interest into a passion. Without the passion you will not give it the attention that it deserves.
For me the ASX website has the required FA info that you need. RSS can be used to track news on the stocks you are interested in. Chat forums like this one and another one talk about the TA and the sentiment. You do however have to wade through all the posts to come to your own conclusions about the posters. Google finance, yahoo finance, big charts, quotetracker are all free resources that you can use. I have just finished reading Roger Kinsky's Teach Yourself About Shares and plan to get his Online Investing book. The Snowball: Warren Buffett is my bible so to speak. I have also begun to read WB's mentors book from the 1940's Security Analysis - Graham and Dodd.
At the end of the day I will only risk money I can afford to lose. The market goes both up and down. There are winners and losers. There is no sure thing.

[Nero64]

so which companies are currently still relatively high yielding



Telstra seems to be currently

Telstra payout 1.8 Billion in dividends.

Now lets put this into perspective.

Its after tax profit was 1.9 Billion/half year

Its dividend cover is x 1.1

Something is not quite right there :confused:

It means it has to probably borrow more money to keep paying its current dividend of 14c.

What will happen is the following:

It will decrease its dividend and this may help its share price or keep it and its share price will drift lower.

Make no bones about it, Telstra is a great company with great assets and market monopoly but it has always had debt. It's plain as mud on its balance sheet. It can't be ignored especially now as funding is drying up.




but how do you get this information?? is there any website that has all the dividend returns for asx companies?


I use commsec which has access to company financial reports and announcments etc.

[Shrewd Crude]

You cal customise the size of your orders to the amount of leverage you have....
If you are buying options you can afford to put less money on them, so that a larger up swing wont damage your profits on brokerage (had you put the same amount on a blue chip)...
:cool:
.^sc

[Julia]

I use etrade, so within etrade i have created a custom view and this contains div yield.
Just be aware that etrade doesn't always update yields. I checked some of the big banks in their "Company Profile" section which quotes div yields some time after the cuts in dividends were announced and e-trade had not made the adjustment.

Also, as things continue to be difficult, more businesses will cut dividends.

Ken Henry is apparently also looking at dividend imputation in his review of the taxation system.

[snowking]

This has turned into an interesting discussion about the medium to long term investment. I don't think you can lock away all stocks for a period of time and expect the dividends to roll in. You still need to keep an eye on them to see what the market thinks of certain things happening within the company, local economy, world economy, etc. Sure the dividends might pay your interest on your loan but if you don't keep an eye on things you could have half of what you started with due to the price falling.
For example this time lat year you bought RIO at $149.52 per share. Dividends are good and looking good going forward. However current price a year later is $64.44 and you would be down $85 per share. How long will it take to get back to that level?
Hopefully this is the low point in the market and they are undervalued and you are getting in at the right time but short, medium or long term needs constant attention.
I am no expert and would probably be considered quite a noob. This is however something that I am very interested in and I am prepared to turn this interest into a passion. Without the passion you will not give it the attention that it deserves.


You definitely have to actively manage your investments whether the period be 10 days or 10 years otherwise you most likely increase your risk of failure. As a noob I look at it like this, if you own a house you dont just let it run into the ground and ignore anything thats wrong with it, so why should you leave your shares and not bother to look at them for 10 years.

For any noobs who want a step by step approach to reading and understanding the key aspects of a balance sheet, click on the following .http://www.afr.com/home/investment_guides/investment_guide_financial.aspx