From: keith@iscp.bellcore.com (Keith Hawkins)
Subject: Re: < $5000:don't buy stock?
Organization: Bellcore
Distribution: usa
Date: Wed, 6 Jan 93 15:23:40 GMT

In article <1993Jan6.023232.15955@Happy-Man.com>, irving@Happy-Man.com
(Irving_Wolfe) writes:

|> 
|> Why suggest that she buy round lots?  She'd be far better off 
|> buying 18 shares (or whatever, to make $1000) of each of the 
|> higher-priced stocks, so she _could_ have some diversification.  
|> What difference does the price of the stock make?  There's no 
|> meaningful penalty for buying an odd lot!  Thus it's smartest to 
|> invest roughly equal amounts in each stock (unless you purposely 
|> wish to favor one or two), adjusting the shares purchased to (the 
|> inverse of) the price.  
|> 
|> -- 
|>  Irving_Wolfe@Happy-Man.com      Happy Man Corp.  206/463-9399 x101
|>  4410 SW Pt. Robinson Rd., Vashon Island, WA  98070-7399   fax x108
|>  We publish SOLID VALUE for the intelligent investor.   NextMail OK
|> Info free; sample $20.  Send POSTAL addrs: Solid-Value@Happy-Man.com


There are some advantages to trading round lots.  
1) You may be charged more by your broker to buy/sell an odd-lot.  
2) You can't place stop loss orders on odd-lots 
3) Buying/Selling small amounts of shares become finincially untenable
   when the mimimum commissions are figured in. 
 
   For example, putting only $700 dollars in a given issue would
require
   that the stock rise at least 10% before one reaches a break-even
point.
   Why?  With a miminum commission of $35, the turn-around cost is
   $70.  Unless you have great confidence that a given issue will
skyrocket,
   starting 10% in the hole is a hard way to make money.

But for this persons objective, these factors may be of minimal 
importance.  Personally, I think the need for diversification is
being overblown here.  One does not need to have a portfolio of 10
stocks to get started.  Buy one or two issues and monitor them closely.
Make it part of one's daily reading to check the share prices.  Also,
set a loss
limit.  Say to yourself,  I will sell this issue if the price falls to
X.  A loss limit of 7-10% of the original share value is a reasonable
safty point.  And if and when the issue falls to X,  SELL.  No matter
what!
Don't second guess yourself. SELL!   

Take your small loss before it becomes a big loss and find some
other stock to invest the remainder in.   Also, while one has purchased
the
initial one or two issues, one should also be researching other
possible
companies to invest in.  Thus, if one should need to sell at a loss,
one
has a list of other opportunties in which to invest.

Another important technique is the ability to take profits while they
are still
profits :-).  If one should be so fortunate as to have a stock rise
25-30%
in price, one should raise the sell point to assure that one locks in
some profits.   So if a stock is up 25%, one should say to oneself "if
the price falls
so that the gain falls from 25% to 15%, I will sell and take the 15%
profit."
Resist the urge to let it ride and hope it will go back to a 25% gain
again.  More
likely than not, you will watch a 15% gain become a 10% gain which will
become
a 5% gain which will become a 5% loss which will become a great source
of 
irritation.


Remember good investors aren't always right.  They're just smart enough
to admit when they're wrong, take their losses when the losses are
still
small, and move on.

-Keith
Newsgroups: misc.invest