How many shares to purchase, bending the rules…

Posted: January 16, 2014 in Speculating

I often read that the consensus of advice is that there is no point purchasing less than around £500-£1000 shares as a block, because of the trading costs involved.  OK. So this is probably a wise statement, and a rule by and large that I follow. However to a novice investor like myself, it can never be a hard and fast rule that I follow blindly.

My justification, is based on the way I personally invest  and based on many factors, but principally;

(a) The investments realistic growth prospects.
(b) My investment timeframe.

Clearly there is no point my investing in a £20/share stock, purchasing 4 or 5 units, and then hoping to make a quick buck within an investment timeframe of a few weeks or months.  That isn’t going to be realistic.

However if I was investing that same sum of money into a stock that had excellent growth prospects, or was undervalued, and my holding period was expected to be measured in years rather than weeks.
Then perhaps, the erosive effects of the trading costs, versus the expected return over the investment timeframe (including dividends) over a longer period, suddenly stacks the investment in my favour.

That has been my experience, especially when some share prices have seemed favourable but my investment capital per month has been around £300-£500 rather than the recommended amount. With price averaging over time, and numerous blocks of shares, these investments have worked in my favour so far.

I am not trying to say that the standard advice is nonsense, because I don’t think it is. It is sound advice probably. I am just trying to share that sometimes I can justify ignoring the rules, so long as I try to use common sense.

Another area where I bend that advice, is if an investment is purely a speculative gamble.

A few years ago I purchased some stocks of Premier Food (PFD.LN) which were selling at around 5p/share on a market overreaction. I broke the above rule and threw a mere few hundred at it.
As I had hoped a few weeks later, the share had scrabbled back up to normal levels, and risen to around 16p/share.

This in/out happened a few occasions, until they did a reverse stock split (but that is another story, and I had got out by then).  OK I got lucky a few times, but those risky escapades had tripled my initial money, and rendered the trading costs negligible, compared to the total profit from risking very little.

With this in mind if on occasion I am merely speculating and want to risk a hundred or so, on a speculative “hunch”, then I certainly wouldn’t want to invest more than I could afford to lose, merely because standard advice on minimum blocks to purchase, forbades my investing any less. 

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