Club Mailbag email InvestingClubMailbag@cnbc.com is as follows: So we’ll send your questions directly to Jim Cramer and his team of analysts. We cannot provide personal investment advice. We only consider more general questions about the investment process or equities in the portfolio or related industry. Question of the Week: Hello Jim, I recently joined the Investment Club. Some of the charity trust stocks are very expensive for the average retailer. Would it be better to buy less expensive stocks, such as Walmart ($100.51), rather than Costco ($963.48)? Another example would be to buy Wells Fargo ($78.96) or Capital One ($221.53) rather than BlackRock ($1099.15) or Goldman Sachs ($738.21). Buying more expensive shares means buying fewer shares and reducing dividends. What do you think? – David B. This is a great question that gets right at the heart of the classic phrase “Price is what you pay and value is what you get.” Several things can be true at the same time. Yes, stock prices vary widely from company to company, and the prices of some stocks means you cannot look at Berkshire Hathaway Class A stock, look at you, or buy a small number of shares. Also, these facts should never be considered for investment in the company. As investors, we are concerned about value, not price. Furthermore, the amount invested in each share, rather than the total share, determines the exposure and thus the potential risk/reward. Whether you own $100 in stocks ($1,000 in total), or a share of one share for $1,000, a 10% movement in either direction would be a $100 change in value. Therefore, when considering how much you should pay for a particular stock, we want to focus on metrics such as the price-to-earning ratio, rather than on stock prices. Holding more stocks could make position management easier as position management offers the ability to adjust position sizes with fewer trades, but owning it under a better priced name is not a good reason. After all, the goal of investing is to make money. Additionally, while position management is an important part of the process, investment choices actually determine the outcome. Having a $10 share price, buying 100 shares of a company that is in debt in a dying industry is not the path to financial success. Technological advances can also help overcome the problems of expensive stocks for ordinary investors. In recent years, many securities company platforms have developed the ability to trade fractional shares. This means that investors can buy and sell shares at the dollar amount that is optimal for them, regardless of the company’s “actual” stock price. The valuation of the target does not change whether you purchase one, ten or tenth of a share, so investing in fractional shares has few drawbacks. There are two main points to note here: First, for more active traders and investors, options overlay strategies become more difficult because options overlay strategies are based on lots of 100 shares. This is not a good reason to invest in fewer companies just because the stock price is more achievable. Second, voting rights are generally limited to full share ownership. However, voting rights should not be a very high priority unless you control a significant amount. The simple reality is that institutional investors and very wealthy individuals have a significant interest in themselves, and the majority of their voting powers are retained. The rest of us are simply together for a ride. The same logic applies for the dividend side of the equation. The amount of dividends is not important. Rather, it is dividend yields that investors should focus on. This determines how much you will get for every dollar invested. A 5% yield on 10 shares of $100 ($1,000 total) is the same as a 5% yield on one share of $1,000. In both cases, you will receive a $50 payment per year (5% of $1,000). That also applies to fractional strains. The yield remains the same, so you will be paid at the same rate as investors with full stock. In both cases, payments are determined by the stock yield and the amount of investment. If you have the same 5% yield hypothesis and own a tenth of your $1,000 shares (meaning you invested $100), collect $5 per year payments. Ultimately, investment choices are really important. You should not compromise your choice simply to own full shares or multiple shares in the company. While some may not like to invest in fractional stocks, it is much more financially wise to do so, compared to an alternative that limits investment options to stocks that can buy full share increments. It focuses not on price, but on the underlying metrics (such as P/E ratio, dividend yields, and other key metrics), along with additional important investment considerations such as management team quality, growth opportunities, and secular trends. These metrics and basic characteristics remain the same whether you buy a full share or a fractional share. Ask yourself these questions about the foundations when considering the Costco vs. Walmart discussion and try to determine which of the club’s financial names (Blackrock, Goldman Sachs, Capital 1, Wells Fargo) is the most attractive. Answers will guide you in the right direction, regardless of stock price. (For a full list of Jim Kramer’s Charitable Trust stocks, see here.) As a member of the CNBC Investment Club with Jim Kramer, you will receive a trade warning before Jim can trade. Jim waits 45 minutes after sending a trade alert before purchasing or selling stocks in the Charitable Trust portfolio. If Jim talks about stocks on CNBC TV, he will wait 72 hours after issuing a trade alert before running the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with the disclaimer. Due to receiving information provided in connection with the Investment Club, there is no obligation or obligation of the fiduciary. No specific outcomes or benefits are guaranteed.
