Amazon’s share price is flirting with $1,000 per share, and many investors might be wary about investing in a stock with such a high share price. This fear of high numbers is irrational and investors who let their emotions get the best of them rarely get the best returns.
$10,000 worth of Amazon is worth the same as $10,000 of any other stock!
A $10,000 investment is worth the same amount whether it’s invested in 10 shares of Amazon at around $1,000 per share or 500 shares of Snapchat at around $20 per share, for example (American Dream Investing does not hold a position in either stock). A 10% rise would mean that Amazon has increased to $1,100 per share and Snapchat rose to $22 per share — which is more likely to happen?
An investor must consider whether or not they think the stock has more room to grow and shouldn’t pay as much attention to the share price.
A 10% rise in either stock equals a 10% return, regardless of how high the stock is priced.
If $10,000 was invested in either Amazon or Snapchat at the time of Snapchat’s debut in March, here’s an approximation of how that investment would look today (June 1st):
Since March, Amazon has gone from $850 to $1,000, while Snapchat has gone from an IPO open price of $24 to around $21 today. A $10,200 investment would have bought 12 shares of AMZN, which is now worth close to $12,000. That same $10,200 investment would have bought 425 shares of SNAP and is now worth $8,925.
Would you rather have 12 shares worth $12,000 or 425 shares worth $8,925?
I know what I’d pick. Of course, these are only short-term results and do not take future prospects into account. But simply being scared away from an investment because of a high price per share could mean missing out on a potential profit opportunity.
Retail investors used to be penalized for buying less than 100 shares
A block of 100 shares is known as a round lot. Buying anything less than that is known as an odd lot purchase. A brief history lesson: Investors that bought less than 100 shares were usually charged an odd-lot differential fee, due to brokerage firms having to break up a round lot to fill an odd-lotter’s order.
This practice has been largely abandoned due to the rise of the digital age making trading much easier for a retail investor. Now, with services like Robinhood offering the ability to purchase fractional shares, there’s no reason to fear what appears to be a high share price.
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