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I see the use of fractions on many of the Fool boards, i.e. "open a small position, say 1/3 now, and then look to add more, another 1/3 in the future". I know this fraction means to buy a certain number of shares of a stock but what is the number?

Thanks
Keith
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Greetings Keith,

I think this refers to how ever much one wants to hold in the company or from some lump sum. At least that is how I read it. Make sense?

HTH,
JB
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Thanks JB

I think you are right. That is what I thought the answer was also, but I wanted conformation.

Thanks again!
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Hi Keith,

As one who frequently recommends this approach I'd describe it this way.

If I make a decision to buy because I think that a company is significantly undervalued I will usually split up the amount that I want to purchase into 2 or 3 separate purchases. I do not set a time limit for my purchases.

Example: Company XYZ is valued by me at $32 per share. It's selling at $24. That is at a 25% discount to my valuation. I tend to like a value approach so I often buy out of favor stocks. I have no way of knowing which way the stock price will go in the short term. It may fall further out of favor and drop below $20 or it may creep up towards my valuation. However I have a degree of confidence that over a period of time the market will recognize the value in XYZ.

I have $1,500 to invest (Scottrade at $7 per trade) so I invest $500 at $24 (actually 20 or 21 whole shares. Should the stock go down I can add more. At $20 I can add another 25 shares. In my case I might say that I won't buy over $25.60 as that's a 20% margin of safety on my $32 valuation

I might take months or years building up a position. Once a quarter I review the company to see if my valuation holds true.

I do have a rough rule of thumb that brokerage fees should not exceed 2% of the purchase price. So at $7 per trade that would be minimum $350.

Best Regards
Philip
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Philip,

That was a great explanation. Thanks! However you brought up several other aspects of investing that I am wrestling with now. I recently joined HG and as we say in the military, the learning curve has gone vertical. I have been scouring Fool articles on how to value stocks, printed articles to study, created work sheets I can use to try my hand at DD etc. However, I am finding that when I work the numbers I, 1) I am not sure that I understand what they are always telling me. 2) That I understand the numbers well enough to set a "value" of what I think the stock should be. I read the HG boards and track the DD work of the other members and I have noticed that many members use different parameters in their DD work, which I find many times more confusing than enlightening. Another aspect you bring up is your margin of safety. I am not sure what my margin should be. The last aspect is you say you check the performance of your picks every quarter. I am finding that, 1) No two companies quarters end in the same month. 2) Doing a quarterly reviews are very time consuming. I am not saying that I don't want to invest the time. I am saying that my lack of knowledge prevents me from being able to do this in a timely manner, which brings us back to my first two points. I have been trying to “chart a course” thru the Fool labyrinth of knowledge but I must say that I loose my way more times than not. I have invested in mutual funds for years and have always wanted to learn about individual security investing. I understand that most mutual funds can't out-perform the market. I have a few of these funds myself and I am convinced that I can do better with the right stocks. Any suggestions on how I should proceed.

Thanks,
Keith
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