My Top 5 Reasons to Make Larger Stock Investments ($3,000+)

Now, we all know from my 2016 goals post that my plan was to contribute to the stock market a minimum of $24,000, as well as to make 3 large trades that are at minimum $3,000 per order (it can be higher as well!).  I have had a few individuals message me, as well as other friends ask me this one question – why?  They also have asked/stated – wouldn’t that then eat into your capital and then you would not be able to strike when an opportunity exists/occurs?  I wanted to respond and shed more light on why I want to make these more “significant” purchases than my typical $600 to $2,000 purchases of stock I would make last year.

stock

To begin – this comes into a few different steps or major bullet points.  I first thought if I should depict my reasons in paragraph form or this bullet list, as we all know our stock list or reasons for explaining sometimes can vary.  I am going to do bullet list format here to explain why I am planning on making these larger stock investments of $3,000+ this year.  Here we go:

1.) Reduces my Cost & Expense Ratio.  When I was trading last year, we can use $1,000 as an example, my fee was $6.95 (I assume it could have been free with Robinhood that we reviewed last year).  That represents a 0.695% expense ratio which is fairly large – as hell – I only pay 0.14% expense ratio on a mutual fund through my employer.  In a single trade – which obviously occurs only once – I am spending $6.95.  Further, if I make a few smaller investments – such as buying Emerson three different times, I am spending more and more money in fees, which is just money out the window for courtesy to use a trading platform and research – well worth it, but aren’t fully necessary with what’s out there on the internet.  Therefore, making larger purchases reduces my active trading fees, as well as expense ratio per trade, which fulfills one of my goals.  This means more of my capital is put to use.

2.) Focus.  Making larger/more significant investments – places more of a focus on what trade I am actually making.  Such as my new strategy once KMI announced their dividend cut – I want to be even more fundamentally sound with my investment decisions, such as really leveraging our dividend diplomat stock screener and paying attention to our top 5 lists.  If you were to buy a shirt at the store – would you want to make sure its the right fit, the right color, the right trim for the right occasions?  Would you place the same emphasis if the shirt was $5 as opposed to $100?  Exactly.  More money being used on a single purchases pushes, at least for me, my mind to want to really make sure of what I am about to buy fits my portfolio and really is the best stock at that time.  The focus is sharpened.

3.) Less monitoring.  Once the large capital is deployed into that more “focused” investment decision – the monitoring should go down, right?  If you ensured it checked your boxes using the screener, that it was financially sound (such as low debt to equity ratios) and that the dividend growth rate was strong, as well as potentially being a dividend aristocrat – the monitoring of what decision you made, should be less.  One can argue that the investment Bert had with ARCP or even our mutual decision to own a TON of shares of KMI – could have been reduced from their decisions and actions that occurred.  Who knows though, right?  Obviously macro-economic events such as natural disasters, the price of a commodity, a re-call of a product or some other fraudulent activity could happen that you cannot plan out.  Hopefully, though, with the thorough and focused attention you gave into your purchase, allowed you to reduce the monitoring of the decision you made.

4.) Less Attention to the Daily Market.  Time – that’s what you end up getting back as well.  Since you spent more focused time on making the decision and further, less time monitoring the market – you now have less capital from the purchase, to where – you’d have to sell your investments to make another move – i.e. no more ammo so that monitoring the market when you have $0 in cash today, may only mean it’s a stock to be on the lookout, but you don’t need to pay attention to every 5 cent price movement.  You now have more time.  Time was freed up then from these following areas: Reduced capital, tighter investment decision, less monitoring on your purchase.  Congratulations, you gained more time.

5.) Building Big Positions.  This one is funny, because Bert and I always talk about it and think it’s more exciting to have those big positions – such what we did with JNJ last year or what I did when I purchased more Philip Morris (PM) after selling off Lorillard.  Having a big position always just gets you pumped up, such as when you have a dividend reinvestment occur and it reinvests, picking you up sometimes more than a full share – trust me, it’s hard to do!  For example, if Johnson & Johnson (JNJ) is trading at $100 per share, you legit need an annualized total dividend from your stake in them of $400 going forward, and at $3/share that means you need 133 shares of JNJ or a $13K position in them.  You can always go through it the longer way/inching your way there if you are buying other companies in small positions along the way OR you can make single/larger investments into them from the get go.

Summary on Making Big stock Purchases

Bottomline, I am excited.  I am beyond excited to make a jump on the 2016 goals, but to keep me focus keen on smarter investments, build big positions and reduce the time for monitoring the market like a hawk non stop.  Instead, I hope to see a nice increase in dividend income, bigger reinvestment and lower overall costs, so that more of my money will work.  I hope to increase my positions in the foundations we have always talked about, looking at Bert’s 5 always buy lists, as well as other well-known, high-quality, fundamentally sound brands/companies.  But… again… this leaves me to question this – do you think it’s a good idea to make larger investment purchases?  If you agree – why?  If you disagree – why?  I love the responses and points of view.  Also, this could help us all in weighing the pros/cons to our investment decisions, in regards to size.  Much appreciated everyone and hope we are all able to hit the ground running in 2016!  I am pumped for YOU and everyone, LETS GO!

-Lanny

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27 thoughts on “My Top 5 Reasons to Make Larger Stock Investments ($3,000+)

  1. I personally feel more comfortable owning less stocks (that I can follow very closely) with larger amounts invested in those stocks, than several stocks with small amounts. While this may conflict with diversification, it’s much easier to follow 10 companies very closely than 60.

    I frequently read that dividend investors say they don’t care because they are holding forever and never plan to sell. I don’t believe buy it and forget about it is a viable strategy, we may buy with the intent to hold forever, but if the company changes, cuts dividends, etc. there may be reasons to sell. It’s very difficult to monitor 30, 40 or more companies.

    Another benefit to consider is if you intend to sell options for income at any point in the future, you will be able to build to 100 shares per company sooner. When I started with options I had to sell and consolidate my holdings in order to hold larger amounts per company to sell call options. Something else to consider for long-term planning.

    • Chimp,

      Thank you. I like that you own less stocks with larger amounts. I know you have larger holdings in aristocrats, so that would make sense and it’s also LESS monitoring right?

      It is VERY difficult to monitor that many companies, which I am starting to witness myself, hands down cannot agree with you more (insert KMI snuff… haha)

      I agree with that last point too. Damn! Haha you are spot on – if you ever want to get into the option arena, and you have over 100 shares – you can start writing them.

      Thanks Chimp, the feedback is nice.

      -Lanny

      • It’s less monitoring total because I have less stocks, and more time monitoring those stocks I do own. I do tend to stick to the aristocrats, but I will go for companies like V and CVS with shorter track records if I believe the growth is there.

        Even if you decide to own less companies at a time, you can still purchase in smaller lots.

        I just like to point out to investors that as a long-term strategy if you add shares of JNJ here and there you may get to 100 sometime in the future and it opens up doors of opportunity for additional income from premiums. This is much harder to achieve if you’re spread over many, many companies.

        All that said, I probably monitor more closely than most wold be interested in doing because I utilize a lot of collar calls, because I’m ultra conservative and protecting principle is my number one priority.

        • Thanks again Chimp. And of course, you probably perform more monitoring on those stocks you own that you are creating option positions on due to the volatility and information that changes/fluctuates the option value so wildly.

          Looking forward to owning substantial positions in aristocrat companies. One is currently on my list to get over the 100 hump for shares (I have 2 in Aflac and AT&T already), and I have an order in to get over that hump.

          Talk soon!

          • Awesome. I actually started out in options with T and KO as they were the most reasonably priced to build 100 shares. Talk soon, don’t hesitate to contact me if you have any questions at all about working with options on dividend stocks.

  2. One thing I started to do this year was calculated my expense ratio, so I could relate to typical mutual funds and see how I stood, like you’ve done. Don’t forget that your actual expense ratio is a product of fees incurred divided by the whole portfolio, not just the dollar amounts of trades you make. You make 20 trades for $1,000 at 6.95 per on a $100k portfolio you’re at a .139% expense ratio. Not at .695% on your $20,000 invested. Food for thought. This obviously only applies when comparing to mutual funds. If you are trying to just limit your cost % per trade, that is different.

    I agree with buying in bigger chunks though, it’s fun to be in the position to do so!

    • Dan,

      Thanks again for the post. I understand, from looking at the overall portfolio perspective. How about this… haha… let’s just reduce the cost to trade this year in total – because damn, I want more money to work for me, eh? Less trading and bigger valued aristocrat positions = year of 2016. What’s nice is – the stock market has allowed for some amped up opportunity, agreed? Making any moves?

      Excited to buy bigger chunks, no free trades left now, so everything will be, from my gut instinct – $3,000+ per trade. Ready to make this happen.

      -Lanny

  3. Well Lanny, I hope your bigger investments work. I suppose if you have a few top quality convictions (such as your top 5), then it’s better to have more money invested in those, than spreading it out to potentially worse buys. I suppose that’s ultimately what this choice is – will you achieve a better outcome by having your $3,000 invested in one company than 3 $1,000 investments.

    I look forward to seeing what you buy with your big purchases.

    Tristan

    • Tristan,

      What’s going on?! That is the debate OR could you just focus your savings to $9000+ and buy $3,000+ in each of those companies and getting bigger bang for your buck?

      Stocks I’m focused on: ADM, TGT, JNJ, AFL – you?? Making moves?

      Thank you for coming by!

      -Lanny

  4. I hope you’d consider other cheaper alternatives because $7 per trade is outrageous. Bank of America is offering free 100 trades per month with accumulation $25k accounts total. So you don’t need to have $25k in your trading account to take advantage. I used Wells Fargo Well Trade, I get 100 trades per year for free. I only buy, so I haven burn through my trades yet.

    Some people use $4/trade at some other brokerages. Check them out, bro. Because this year has been super volitile, if you buy a whole chunk, the stock plunge, you’d run out of cash. Free trades is the best.

    • Vivianne,

      I like your approach. I think it’s because i get partial share drip and am able to also purchase partial shares through capitaloneinvesting as well on tuesday market trades at $3.95. Does BOA or Wells do partial trades and/or dividend reinvestment? I assume they offer all three types – individual/IRA/Roth IRA options.

      We did a review of Robinhood. I like reinvestment, they don’t offer it yet. They don’t offer retirement accounts. I like it all consolidated, at the moment, as I have a savings, checking and my 2 investing accounts (individual and roth) with capitalone at the moment. What are your thoughts with that?

      -Lanny

  5. Hey Lanny,
    If you would have proposed this in the past 5-6 years (during the bull market), we would have strongly agreed with you (great way to limit the purchase cost per order).
    However, with the considerable volatility in the market (and the risk of continued downward trend), it may be a smarter strategy to have multiple buys (based on pre-set trigger values at selected limits). Earning back a couple of dollars on purchasing fees is easy if the market drops by 5-10% is really easy. Just an idea!
    Good Luck.

    • Team CF,

      The volatility is real to start the 2016 year, amazing isn’t it? I see what you mean. if ADM drops to $35 and you pick up $1,500 worth and then drops to $33 and you pick up another $1,500 worth then boom, there you go, averaged down and you grabbed more income from purchasing $3,000 worth at $35. I agree with that. I think right now, this is making me more keen to really let the market be volatile, as I am seeing further downward pressure on stocks. As I am waiting, my cash is also building, i.e. I may have $5K, to $6K and then even more potentially i.e. I may be able to make multiple trades. It’s been a wild ride, stack piling cash over here! Been making moves? Thanks for the post!

      -Lanny

  6. Great post!
    I enjoyed reading the increased focus reason. I also believe it is of importance that the fundamental is thoroughly done before pulling the trigger. As most of us are buy-and-holders we don’t want to be stuck with stocks which we didn’t analyze completely.
    On another note, I envy you and Bert. You guys oftentimes refer to previous discussions you’ve had. I have 0 persons in my surrounding that pay any interest in the stock market or personal economics either for that matter, haha!

    Keep it up
    – mraitn

    • Mraitn,

      Thank you so much for coming by. This will for sure increase my focus and even deeper analysis on the company. Ensuring that it fits my portfolio and the financial metrics are sound now, and going forward.

      Envy us? Nothing to envy! I’m glad you can confine in us and talk -that’s what we are here for and what we enjoy – anytime you want to talk stocks, hit us up, seriously!

      Let’s all keep it up – thanks again!

      -Lanny

  7. Happy New Year Lanny. I think you’ve got a great plan here for 2016 in terms of executing a few larger trades. This would no doubt reduce your trading costs. I think making several larger trades would really help you focus on the absolute best opportunities available at the time of the trade. It is not to say that the other trades don’t require as much thought, it is just to say you might wish to focus on companies on your top 5 lists for these larger trades. Diversity is also very important, which could be achieved by the other trades throughout the year. I wish you success and look forward to seeing how 2016 turns out. Cheers, DN

    • DNiche,

      Thanks for coming by. That was the goal – tighter focus, lower fees, bigger positions. We have some, as Jim Cramer calls it, Accidental High Yielders at the moment within the aristocrat family, which hopefully we can all take great advantage of. People are afraid of the market at the moment, and we love it. Let’s make moves where we can, thanks for the post!

      -Lanny

  8. Lanny,

    Decreasing trading costs by investing in larger allocations is smart. I’m currently trying to reduce my costs by doing just that as well. Schwab charges $9.95 per trade so I’m waiting until I have at least $2000 to invest. That way the one time per trade cost is less than 0.5%. In order to save on options trading fees, I convinced Schwab to give me $1 options trades per contract with a $5 minimum. (Previously $9.95 + 75 cents per contract.) For the volume of options trades I do, this pricing is pretty good.

    I also have Loyal3 and Robinhood. I use Loyal3 quite a bit to buy Berkshire Hathaway, Disney, and Unilever. The issue that a friend has with Robinhood is this: if he sells and wants to reinvest that cash in another stock, the wait has been around 5 days for him. With Schwab, there’s a 3 day wait for the funds to settle IF I’m trying to transfer those funds to an outside account. At least in my Schwab account, if I sell, I can immediately use that money to trade stocks…no 5 day wait with Schwab. Granted, this might not affect people with a more “buy-and-hold” mentality.

    Scott

    PS, I love your 5 always buy list. That’s a great idea that I hope to replicate myself this year!

    • Scott,

      Thank you, first off, for coming by. I love this challenge to reduce costs, it’s exciting actually. And whoa $9.95 is expense, that’s for sure – do they give you discounts or free trades at all?

      Oh, so you do use Loyal3 and Robinhood? And whoa…. 5 days to wait for that? That’s wild…and frustrated. I understand clearing and settling, but DAMN. haha

      Glad you like our 5 always buy list – trying to put our top “5”s for the community – it helps and reminds us all, including Bert and myself, that’s for sure.

      Keep us posted Scott, and thank you so much again!

      -Lanny

  9. No question that with larger investments you feel you have more “skin in the game” and thus are more careful with how your funds are deployed. Also, as you stated, you cut your investment fees which over time can add up to a lot, especially when “over time” equals two or three decades worth of investing. Always love getting further insight as to how and why people invest a certain way. Thanks for sharing.

    • Hut,

      Thanks my man! Of course. More skin in the game, less of a crazy focus on the market everyday (esp. if you have less capital to use) and less monitoring due to the more intimate research.

      Maximization of money, eh?! Lets go DivHut 2016 will be a great year!

      -Lanny

  10. Hi Lanny,
    Certainly an interesting decision and I think it’s probably a good one although I suspect you’ll miss the more frequent trading a little.

    I am surprised to see ‘excitement’ listed one of the benefits of holding a big position; although maybe I’m reading it the wrong way because of your enthusiasm and passion for investing. Investment decisions should never be about excitement and I would just be concerned that emotions might end up clouding your purchase decisions despite the screener; emotion is designed to trump logic after all.

    I’m guessing at least two stocks I hold will cut or freeze dividends this year (BBL, maybe CVX); they’re not big positions however, so should make little difference overall.

    I am looking forward to seeing your progress and your purchases, and wish you all the best for a successful 2016!
    -DL

    • DL,

      Thanks for the post. I mean excited in that – say if you had 100 shares of ADM – it’s exciting knowing that you have a large dividend check coming from an aristocrat quarter after quarter – not exciting as a sexy penny stock… and I think you probably know that about my portfolio, eh?! It’s exciting to own boring stocks, is really what I mean, but more exciting when you own bigger pieces of the boring aristocrat stocks. Again, I may be a different investor when it comes to exciting.

      As for dividend cuts – BBL I know sat on a decent amount of cash last check in, and am hoping they are stock piling more. A freeze obviously is a hope, and a dividend cut is a concern. As for CVX — I think they hold it steady one more year. We shall see and time will tell, 2016 still early (11 days in).

      Looking forward to it all and I appreciate you tremendously for coming by and sharing a comment. have you been making some big moves? If there is one stock you’d like, right now, what is it? GO!

      -Lanny

      • Hi Lanny,
        That’s good to hear and I’m glad I misinterpreted what you wrote!

        I agree with you on CVX; I think a hold is more likely as they’ve made their dividend priority #1. They’re already up to 7 quarters without an increase but they have 4 more quarters to go before losing their growth history. BBL, I’m just thinking, isn’t as attached to its dividend and they’ll be more prudent.

        No big moves on my side – I’m working on putting the capital B in boring! I added a small amount of DEO this month. One stock I like? I’d go with WMT.

        Keep up the diplomacy! 🙂
        -DL

  11. I’m glad you said less attention to the daily market. That is always counter productive and this can help you save a lot of time. Thanks for the tips!

  12. Lanny,
    I’ve gone in a bit of the opposite direction over the years. When I first started out, the costs of a stock trade in Canada at most discount brokers was around $30. As a result, I didn’t like investing less than $2k-$4k in a single shot since even on $3k, that’s a 1% bite. Since costs are now down under $10 per trade, I’ll allow myself to go to around $1k in a single trade, accepting the 1% bite every now and then in exchange for not missing the opportunity cost on the sidelines.
    I’ve also begun averaging down on more of a regular basis if the company I purchase drops. Back in 2009-2011 the market was still rather low, so I just wanted to get in as much as possible as I suspected it was the opportunity of a lifetime.
    Thanks for the article.
    – Ryan

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