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.
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