Shares question

[neorichieb1971]

Someone who is a self made millionaire told me yesterday that buying shares cheaper is always better. Which makes sense.

But when I confronted him with the argument of -

Company A - 10 shares = £1
Company B - 1 share = £1

Both companies gain 20%.

In both cases, you make £1.20. So I don't see how it makes any difference. Surely its perception. Does it matter what shares cost and how many you get for the same amount of money? If you do benefit by getting more shares, why is that? So far I've just been told "Because it is" which is not what I want to hear.

They say its mathematics but I'm saying mathematics tells me its the same. From what I can tell the amount of shares you have is only relevant to how much you can afford.

[sven666]

its because you usually count from the ammount of money you have to spend.

the bigger the spread of your shares the less likeley you are to loose on them, it also means you have less profit but to make millions off buying shares you just have to grind it out.

20% profit is still 20% profit no matter how you twist and turn on it, but if you have 1000 different shares with different percentages there is alot of calculating going on to show your profit.

to make it big on shares in just one company is a bit like playing the lottery, it can happen but you have to be one lucky SOB to pull it off.
playing the stockmarket is actually quite similar to playing internet poker in that regard.

ed: reading what you wrote and what i wrote i can see im pretty much just repeating what you already know.

[dcharlie]

Both companies gain 20%.

In both cases, you make £1.20. So I don't see how it makes any difference.

in this case you are presenting this as a fait accompli, so - yes - in this case there is little difference . Simplifying it as you did : You invested in two companies with the same total share value with different lot sizes (price would dictate your ability to purchase certain shares in round lots obviously!) - you then enjoy the exact same "return" of 20%. So , yes, from that perspective there is no difference.

However, what your friend is probably pointing at is various studies looking at historical data that suggest that growth in lower priced stocks tends to out perform that of higher priced stocked by around 2-3%. To be honest, there's a lot of different takes on the data and some people will present data/findings showing it's the other way round.

At the end of the day - you probably shouldn't be looking at a raw share price anyways if you are an investor. There's other factors that would be better indicators of what may/may not be a good stock to buy.