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Size matters in stock positions

We continue with our discussion in the White Top View series, Portfolio Counts and Sizes with Part 3 of 6.

Size matters in stock positions. The number of stock positions as well as the size of each position measured in both the number of shares and amount of money invested per position all matter.

These numbers are easy to figure out.

These numbers are easy to figure out.

The number of positions

Yesterday we discussed how many stocks to hold in a portfolio and settled on a range of 5 to 30. My preference is 10 or so for a growth portfolio and 20 or so for a more conservative dividend portfolio.

When speculating or bottom fishing an attention demanding high risk portfolio may hold over 30 positions. This very aggressive approach is definitely not for beginners.

In fact, not many experienced investors play this specialized approach well. Few do. Until you have significant investing and trading knowledge, stay completely away from aggressive speculative strategies.

Today you can use a calculator to play with a few simple numbers to better know how to size each position in terms of numbers of shares and dollars invested per position.

The size of positions

Following on from our last discussion we review factors to consider when deciding how many shares to buy or how many dollars we will put into each position. Size matters in stock positions so getting the size right greatly influences the performance results for your portfolio.

I am looking for a little position!

I am looking for a little position!

Position size factors to consider

  1. Difference Making Size

  2. Affordable Costs

Buy enough to:

  1. Change Your Worth

  2. Min transaction cost per share

  3. Purchase in board lots

  4. Round up when necessary

Difference Making Size

At a minimum buy lots of 100 shares.

Your difference making position size means that with success you must change your worth. Because size matters in stock positions, unless you buy enough shares of a specific company, to materially benefit from a rise in the stock price, don’t buy any. For doing the research and taking the investment risk you must have a good potential pay off. Otherwise why do it?

The need to own large enough position or difference making position sizes, means you have to pass on holding small numbers of shares. As your absolute minimum, think of buying multiples of 100 share lots. Size matters in stock positions because buying large enough lots allows you to have a reasonable cost/share. Like all costs, the transaction cost/share can significantly affect your overall return.

The 100 lot of shares priced above $1.00 is called a board lot. There are techniques of buying smaller amounts, called odd lots, or of buying lower priced shares but we can discuss those topics at another time.

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Have a prosperous day!

Bryan

White Top Investor
whitetop@WhiteTopInvestor.com
www.WhiteTopInvestor.com
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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact info@WhiteTopInvestor.com.

Images courtesy FreeDigitalPhotos.net

Links to all parts of the White Top View series, Portfolio Counts and Sizes:

Part 1, Five Factors – how many stocks to hold

Part 2, Investing academics and holding counts

Part 3, Size matters in stock positions

Part 4, Costs drive investor position sizes

Part 5, Portfolio portion measurements – how do you measure up?

Part 6, Investor watch lists and toe holds

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