This week on the cigar talk an investor from Detroit came on and started talking stocks. It was a great conversation.
During this conversation though he brought up a stock in a marijuana company that you could purchase for a low price. The way he put it was that you could buy 240 shares of a company for only $40.
This statement drew in a lot of interest. Everyone wanted to know what company this guy was referring to. They too wanted 240 shares!
When I heard the statement and saw the interest I knew this was an issue. People were equating the amount of shares with the value of the investment. This is a problem.
For the record: The amount of shares that you own does not matter. The amount of money that you invest is what matters.
First and foremost, in stocks, as with anything, you usually get what you pay for. A cheap stock is cheap for a reason. An expensive stock is expensive for a reason. To quote WB, Warren Buffet, “it is better to own a wonderful stock at a fair price than a fair stock at a wonderful price”. Your goal should be to find quality companies, not cheap prices, unless you are getting a cheap price on a quality company. Cheap trash is still trash. A lot of cheap trash is still trash.
One mistake I made when I was a young lad was I would buy a lot of cheap stocks because I looked at stocks as lottery tickets or as individual bets. I figured the more stocks I had the better chance I had at winning. The problem is that if you put $1,000 into cheap stocks and $1000 into a expensive stock you still are investing $1000.
For example: If you buy 100 $10 shares of a company vs one share of Amazon you could be making a bad bet. The investment is the same investment but Amazon will be here tomorrow and for the next decade. Your $10 company could be on its last leg.
I know people who bought shares of GM when they were selling for pennies only to have GM go bankrupt and they be left with NOTHING. Cheap stuff is cheap for a reason.
As I stated before, price indicates quality. It is tempting to chase penny stocks and I chased them too but those are not investments. Those are in fact lottery tickets. You might make money but you will likely lose it.
So the “a lot for a little” mentality SCREAMS immaturity. It SCREAMS that you don’t know what you are doing and it is an early indicator that you will lose everything that you have. I encourage you to buy quality, for the long term even if it means you might only own five shares of Apple vs. 2000 shares of that unknown tech stock, or worse, that crypto currency.
Buy quality and continue to make more new money and buy more quality. Don’t focus on the price of the stock and the amount of shares you can buy as much as you look at the quality of the investment. I promise you, that is how the pros do it.
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Thanks for reading!
Be great, invest well,