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I am extremely excited to announce my new e-book, SOLID STOCK SELECTION is now available !! Click here to find out more.
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8/27/2006 Commissions and Share Purchases This week’s letter addresses the question of shares of stock. I touched on this briefly once before, but felt more clarification was needed. I talked about share price not being a true reflection on the value of the company and I will clarify that. If you have one thousand dollars worth of stock in company XYZ it doesn’t matter if it is one share or one thousand shares when you talk about the chance for your investment to grow. If a stock goes up five percent, five percent of one thousand is fifty dollars. However you divide the shares doesn’t impact the increase in value of your investment. Where your investment does get impacted with the number of shares is when there are dividends paid on a per share basis. Taking the same investment of one thousand dollars with a dividend being paid of fifteen cents per share, obviously if you own ten shares you will get $1.50 (10 times 15 cents.) With owning a hundred shares, your dividend would be fifteen dollars, etc. etc. This brings up the final question, how many shares must you purchase of a stock? And generally the answer is however many you want. You are not required to buy blocks of 100 or any other such number. However, the commission can be a huge percentage of your investment, if you choose to buy small quantities of a stock that has a low price. IF a stock is ten dollars a share and you buy one share, and your broker charges a ten dollar transaction fee, the percentage of the investment is 100%. In other words the commission fee equals the investment. On the upper end if you buy a single share of stock that costs ten thousand dollars, the 10 fee is a minimal percentage of your investment. In the first example the single share at $10 would have to triple in price for you to break even on the stock ($10 initial cost, $10 purchase commission, $10 sale commission.) This shows you that the percentage on the investment/commission ratio should be a factor when you determine what you are going to buy. If that percentage is high, you might want to consider delaying your purchase until you can afford more shares. That's all for this week, Thanks, Rob
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Want a scholarship into the Millionaire Mind Intensive worth $2590? http://www.secretsofthemillionairemind.com The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy copyright Robert E. Britt 2006 |
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