A "Cheap" Way to Buy Expensive Stocks

Would you rather have one Mercedes S-Class – or four CLA-Classes? One beachfront vacation home or three in the woods somewhere?

Either way you’re paying the same total amount – about $120,000 for the car(s). Whatever for the house(s). But you get the point.

What does that have to do with investing? Plenty, as you’re about to see…

One share of Amazon is about $380, for example. A share of Netflix will run you more than $450. And Google’s “A” shares are almost $550 a pop.

Meanwhile I can rattle off a ton of $30 stocks I think are good buys. So here’s the $64,000 question:

Is it better to own a hundred shares of one $10 stock…or two shares of Google “A” shares?

Either way, you’ve got the same amount of money in each position. (Just play along for the sake of argument, will ya?)

Is there a difference?

Here’s the answer:

None. Nada. Zippo. But almost every single day I get a question almost exactly like this:

I am sure there are many investors like myself that would appreciate your recommendation of some stocks that are less expensive than the ones that you have been listing.  I don’t have a large amount of money to invest and need to use my funds to the best.  Lately, the stocks you have been recommending are ones that are more expensive, up to $80+ per share.  In order for me to purchase a reasonable amount of the stock shares, they need to cost less… Please consider recommending stocks that cost $20 or less. 

That’s a real email. And a lot of you kids have the same question. I literally have hundreds just like it so I figured I’d put this issue to bed once and for all.

Listen:

Forget about the price of the stock and think about the size of your position instead. It doesn’t matter if a stock is $1 a share or $100 a share. It’s the dollar size of your entire position that counts.

To show you why I’m dragging your butt to math class for a second. You’ll see afterwards why harping over share price is a waste of time…
Let’s say you buy 10 shares of Company A for $350. But you also buy 1,000 shares of Company B for $3.50. Now for each of these purchases you’ve laid out $3,500.

Still with me? Good.

Now let’s say each of these stocks have jumped far higher after six months. So you decide to sell. Company A has moved up to $400 per share. And Company B is now trading at $4 per share.

You sell all of your shares of both companies. And you calculate your total gains. Which one made you the most money?

The answer’s so obvious even Hillary Clinton couldn’t play dumb…

You made the exact same amount of money on each trade.

You were able to pocket gains of about 14.3% on both transactions. You spent $3,500 on each trade and ended up selling at $4,000—giving you a $500 profit on both.

But listen, you’re not the only one thrown off by all these numbers. I have a bunch of smart friends who won’t buy a single share when the stock gets “too expensive”. And believe me, I try and set ‘em straight when it comes up.

As you can see from our example, share price doesn’t really mean anything in the grand scheme of investing. No matter how you slice it, it’s the amount of dollars you put into each trade that’s important – not the price of the stock itself.

So the next time you’re scared off from a $100 stock—don’t be! There’s no “reasonable amount of shares” you need to own in order to make money. Remember, if a stock can grow to $100 per share, what’s to stop it from becoming a $500 stock? Or a $1,000 stock?

Look, every day I focus on the best trading opportunities, regardless of share price. I don’t care if a stock is $5 or $500. If I think you can make money, I’m gonna let you know about it. Period…

Now you know why even an “expensive” stock can mint you a small fortune! Don’t pinch pennies because you think a stock’s price is too high…

Regards,

Greg Guenthner

for The Daily Reckoning

P.S. A stock’s often expensive for a good reason. If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.

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