Lesson 8: The number of shares you own is critical

LESSON #8: THE NUMBER OF SHARES YOU OWN DICTATES YOUR PROFITS! This is a tough concept to get, so bear with me here. It's not the price of the stock, nor is it the amount the stock moves up that gets you your good profits (realistically.) It is the number of shares you own that will dictate how much profit you can make. Lets say stock ABC is $100 a share and stock XYZ is $25 a share. You have $10,000 to invest, so you can either buy 100 shares of ABC or 400 shares of XYZ. If both stocks go up $1, stock ABC would get you $100 profit, but stock XYZ would give you $400 profit. 4 times the amount of profit for the same amount of stock value movement. For stock XYZ to make you $100, it only needs to go up $0.25. It's obviously much easier to find stocks that will go up $0.25 than $1.00. Now, this isn't to mean buy the cheapest stock you can, that's totally not the point. The point is to be realistic. If you have $5000 to invest, you shouldn't look at $60-100 stocks because you can't get enough shares to make a dent in the profit column. You'd be better off in the $10-20 range because you could get more shares. Remember, narrow the market to what will work for you at the time. Hope this makes sense. Let math be your friend and look at what the stock will have to do for you to make the amount you want. My goal is always to make $500 on a stock. That's my minimum goal, so I can just do the math and know that if a stock is $10 and I have $5000 to invest in it, I can get me 500 shares. So, we add $500 to the original cost, $5,500 and divide that by the number of shares we have, 500 in this case, and we know that the stock price needs to go up to $11 for me to make $500. Then you have to decide if that's reasonable for this stock. If I had $5000 and bought a $100 stock I'd have 50 shares. Add the $500 we want to make to the initial investment, $5500 and divide by 50 shares to get what the stock needs to get to for the $500 profit we want. That's $110! Will the stock shoot up $10 for me to make $500? Probably not, so this isn't a very good investment. It doesn't matter how good the company is, realistically for you to hit a stock that will go up $10 is a very low percentage chance. I'd much rather have the risk of needing to go up $1 vs the risk if having to go up $10.