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Nick S | My wife seems to think it makes no sense buy a expensive stock. How do I explain to her that it doesnt matter |
For example we had a discussion about apple and I wanted to buy it at about 130, but she didnt think it was a wise choice because of the high price. So instead we settled for a lower priced stock and bought more shares. Is there anything in writing that I can show to her that breaks it down in dummy terms. Its all based on gains and not stock prices. I know some can be over or under valued, but thats a whole different ball of wax. In my mind the stock price is irrevelant, its all based on your total investment. |
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006
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Show her two hypothetical companies, each worth $100. Divide one company up into 10 shares, and once company up into 100 shares. Buy $10 of each company (one share of one company and 10 shares of the other).
Now increase the value of the companies to $150 each. Show her what happens to the share prices (they increase to $15 and $1.50), and your total investment in each company (up from $10 to $15, regardless of the price of the share). |
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jimbobbighouse
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tell her to look at Berkshire Hathaway (BRK.A on theNYSE)
$112,900 per share. Market cap of $174 billion - run by Warren Buffett.
Cisco - CSCO - $30 per share - $177 billion market cap
Sun Microsystems (SUNW) - $5.00 per share and a $17 billion market cap
You can probably find more extreme examples of companies with similar market caps and wide ranging share prices... or find companies like Sun that have split their stock too frequently and now are under $10 per share.
Makes no difference. |
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Casey J
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I would suggest showing her the P/E ratio of two different stocks (one with high price, one with lower) where they have the same P/E. This will help her to understand she is buying earnings and how the stock price alone can be deceptive.
Good luck. |
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CountTheDays
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Clearly your wife has an idea as to what stock price is too high. You could, in those instances, buy the options instead at a much cheaper price. That way you'd catch the price move without holding the stock and also have the option to buy the stock if you really wanted to at the price you select rather than at the market. |
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Blicka
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Would you rather own 100 small houses worth $10 million or a single Trump hotel with 100 rooms worth $10 million?
Try to talk more about the total sum of money being invested without even worrying about the number of shares. If she can't understand that share price is completly irrelevant, you shouldn't even be talking about # of shares with her. Stick to $ invested and which companies 'look good' to both of you. |
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Ryan S
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hmmm the bigger question here...
will winning the arguement help your marrige??? or is this one that should be silently won?
I'd buy the book "investments for dummies" and "learn" with her the different ways valuation is calculated... pointing out that price of stock isn't one of the methods.
or.. if this was something i felt like argueing....i'd try to get her to educate me how she would decide if a stock was expensive.... is it P/e ratio? price to sales? price to book? share price? and challenge her to back up her points as being valid methods...
ultimately there are many ways to deecide if a stock is expensive and different professionals have different methods.. but share price isn't one of them unless its in context of other things .. like sales or book value etc.
afraid i dont know of any real thurough yet simple websites... but here's a start
http://en.wikipedia.org/wiki/Stock_valuation |
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Thin Kaboudit
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Tell her you are going to give her a cash gift:
She can chose between three envelopes, one containing one hundred $1.00 bills, one containing twenty $5.00 bills, or one containing five $20.00 bills. Which one does she want?
Why?
You are right, it makes NO difference!
The ONLY difference with a stock price is that more often than not, a higher stock price indicates greater market confidence. So a stock trading at $100 a share is FAR more likely to still be doing well a year from now than one that is trading for $6 a share! |
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Freethinker
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Well, the idea is to buy low and sell high. You should look at the stock's chart, see what analysts have to say about it, look at the technical indicators (to see if it is overbought or oversold), and see what other products they have in the pipeline to generate future revenue. Also, what is the stock's price in comparison to their competitors?
You are right in the sense that a stock at $15 isn't necessarily better than a stock at $130. Google is a good example of a stock that had a high cost per share a couple years ago, but has continued to go up. However, that doesn't mean Apple will continue to go up. Again, do some research. Also, consider the overall health of the economy. If something happens and the economy tanks, people won't be buying $600 iPhones. |
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