I've become aware recently of a not-so-great habit I've
gotten into in my investing: When I decide to invest in a
company, I often buy too little of it.
It wasn't always this way, though. Let me explain, with
some simple round numbers. Imagine that in my early investing
years, I had a portfolio worth a total of $100,000. (In
reality, I started out much smaller.) So I'd routinely buy,
say, $3,000 to $5,000 worth of a stock at a time.
Even this wasn't perfect, because a $100,000 portfolio
could have 33 $3,000 investments in it, or 20 $5,000 ones.
Owning around 20 to 33 different stocks can be problematic
for several reasons:
bestideas. Think of the 10 stocks that are most
compelling to you. Now think of the 10
nextmost compelling stocks, and the 10 after that.
Why be putting money into your 29th-best idea, when you
could simply add more to your best or second-best ones,
where you're more confident?
Buying certain numbers of shares of your stocks may
reinforce a habit like this. Given that many stocks trade in
the same general range, it may seem simple just to buy 100
shares of everything. But see what happens if you opt to buy
100 shares apiece of the first seven companies in the
Dow:
Company
CAPS Rating
(out of five)
Recent value of 100 shares
3M (NYSE: MMM)
****
$7,380
Alcoa (NYSE: AA)
****
$1,308
American Express (NYSE: AXP)
***
$3,307
AT&T (NYSE: T)
****
$2,696
Bank of America (NYSE: BAC)
***
$1,660
Boeing (NYSE: BA) Continued... |