I can’t tell you how many times I am told that “Amazon is too expensive!” Or, “I can’t buy that, it’s too expensive. It wouldn’t be worth it.”
Time and time again, it never fails. But is a stock being “too expensive” a reason not to buy it? Here is the argument (usually) for not buying the stock because it’s too expensive: Because you won’t be able to make enough money, because you can’t buy enough shares.
Ok… So I’d be a liar if I said I did not think the EXACT same thing when I first started out investing. I thought you had to buy a million shares of something to make a good return. Until one day my dad said “you know a percent of $1,000 is the same regardless if it’s one share, or two, or three, etc… right?”
I was dumb-founded by such a ridiculous comment. “Ughhhhh!” I thought, “how dare he question my judgement.” After all, I was a brand new investor/trader and new everything already, DUH! I knew without a doubt that the more shares you had of something, the better off you were. I was sure of it… until… I thought about it.
Let’s use $1,000 as a nice and easy number. Assume that stock ABC (hypothetical company) is selling for $1,000 per share. And stock DEF (hypothetical company) is selling for a measly $100. Obviously I can make more money with 10 shares of DEF, than I can with one share of ABC, right??… NOPE! And here is why:
(Not including fees) I buy 10 shares of DEF at $100 per share, for a total of $1,000. You buy 1 share of ABC at $1,000 per share, for the same total – $1,000. A month later, both company’s stocks are up 15%. WOW! We nailed this trade. GREAT JOB! So who made more money? We both made the exact same amount… I know, right! Shocking!
Your 15% gain on 1 share of ABC is $150. My 15% gain on my 10 shares of DEF is also $150. Wow, who would have guessed!? See my point? It makes no difference what the share price is. The ONLY thing that matters… let me repeat that… the ONLY thing that matters is how much money you are willing to spend and/or risk. That’s it!
I bring this up because of Amazon – a very high priced stock, but a very good company (in my opinion). Amazon right now is selling for roughly $1783 per share. Would my money be better spent on 10 shares of something that costs $178 per share? Or even 20 shares of something that costs $89 per share? Or would my money be best spent by purchasing one share of Amazon? In the end the money spent is the same, the number of shares makes no difference at all.
Don’t let the price tag turn you away. Good solid company’s sell for whatever that good solid company sells for. Maybe there are GREAT stocks for under $100 (and there are, trust me). But maybe that $1,700 stock is also a really good buy. Always remember that the amount you have to spend and/or risk is all that matters. The number of shares you own should mean nothing to you.