Is it worth buying 1 or 2 shares of a stock?

Summary

• Most first time investors often find it difficult to ascertain the company to invest in
• Quantity of shares bought ultimately reflects the investors’ confidence in company
• Number of shares purchases is directly proportional to availability of funds
• Shares purchased on borrowed money can have certain unforeseen implications

Stock market investment has always been subject to a number of factors, primarily involving the quantum of capital you have to invest, the brokerage and commission fees, the market price and the number of shares you want to purchase, the time period for which you want to stay put and the ultimate objective of investment.

Most of the first time investors, traders, new market participants especially the beginners often find it difficult to ascertain the company in which the investment should be made and the number of shares that should be ideally purchased in order to have a sizable amount of gain.

How many shares should I purchase?

The quantity of shares purchased by investors ultimately reflects the confidence in the company and the adequate availability of funds. If you are having serious constraints with the availability of funds, a financial expert may advise you to buy the shares which have lower market price as, at the conclusion of trade, you will end up owning a relatively higher proportion of the total issued share capital of a respective corporation.

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Keeping aside the rationale of buying shares, including the fundamentals of the company, the stance of management, the profitability ratios, the cash reserves and other equivalent balance parked with the financial institutions, the brand value, the market share in a particular industry and the overall debt burden, buying a single share of a company can be advantageous for some investors, while it can have certain downsides as well.

Buying a single share vs multiple shares

For instance, you have a total capital of £100 to invest in the stock market. The share price of ABC company is GBX 10,000, while the market price of XYZ company is GBX 100. Excluding the trading fee, brokerage charges and other related levies, an individual putting his money in ABC company can only own a single share, while a person investing in XYZ firm can have as much as 100 shares.

If we include the brokerage charges of say £3. The total cost of acquisition for one share of ABC would be £103, whereas in the same amount of money you can own 100 shares of XYZ.

On the other hand, there is absolutely no harm in buying one or two shares of a company, provided the decision has been made after a comprehensive analysis. A person buying a single share of high market price can’t sell proportional units, while an individual owning 100 shares of less market value can sell a proportionate number of holding in the event of price rise or fall.

A person blocking a £100 in a single share will not remain in a position to diversify the holding, but an individual with 100 shares can liquidate some of the shares to buy a stock of a different company, effectively diversifying the risk.

On the contrary, owning a single share can be an easy step to start investing without risking a large amount of money. A person can duly observe the quality of decision and the selection over a period of time. Adding single shares of multiple companies in a stretch of months or quarters can act as a foundation stone of a strong portfolio of equity as larger quantities can be added for the shares that have relatively performed better than others.

In the case of losses, the person will not lose a high amount of money, unless a share that was purchased has a market price of thousands of pounds. Buying a single share can be the most trouble-free way to introduce a person to the stock market investing world.

How much money do you have for shares?

First of all, the number of shares you purchase is directly proportional to the availability of monetary resources. Therefore, it makes sense to limit the buying within the bearable expense, the money which you own.

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The shares purchased on borrowed money, a personal loan, money diverted from a credit card in order to capture a so-called lucrative opportunity, and funds taken from a friend, or a family member certainly have different calculations as you will be obligated to return the money after a stipulated time, adding an interest to it if the money is taken from a registered financial institution.

Should you go for the favourite pick?

The first time investors or the people who have just started their stock market journey usually have some favourite companies in the back of their mind, the corporations that have high influence on the individuals through the product offerings or marketing campaigns.

This can be a little distorted means of identifying the companies, as a firm with strong fundamentals can have the state-of-the-art marketing campaign, but a firm portraying itself as the best through a campaign can have substandard fundamental values. All the large-cap shares should not be ideally taken into consideration, only because the stock has a presence in the benchmark market index.