It’s one thing to miss the boat on a great investment. Even Warren Buffett does that.
Yet it’s quite another to watch a luxury liner sail on by and feel powerless to climb aboard. In this case, you’re savvy enough to know where that ship’s going. Then you take a look at the ticket price, and suddenly a year’s worth of prudent saving to buy stock feels an awful lot like chump change.
Witness the recent run-ups of Amazon.com (ticker: AMZN) and Alphabet ( GOOG, GOOGL) as prima facie evidence. Amazon was trading Monday at $995, up 39 percent over the last 12 months. Alphabet? It’s Class A stock is an almost identical $976, and in the black an almost identical 38 percent. It even hit and stayed above the $1,000 mark for a brief spell in early June.
[See: 9 Investing Steps From Warren Buffett’s Playbook.]
Meanwhile, the cryptocurrency bitcoin continues to do a fine impersonation of a loose Las Vegas slot machine. Even the bad publicity generated by the WannaCry ransomware attacks (the bad guys asked for their payments in bitcoin) failed to derail its latest digital-age rally. As of Monday, one bitcoin was worth more than $2,559, close to five times what it fetched in 2016.
So let’s see: one share of Amazon, one share of Alphabet and one bitcoin. That’s not asking for much, is it? Just one. Of each. And as long as you’ve got $4,500 lying around, you’re golden, pal.
Or, you could just take one of those high-ticket investments and do what you never would with, say, an Armani suit: Cut it into little pieces and buy a few of those instead. This is where the fractional purchasing concept comes in, and some of the newest mobile- and web-centric platforms make it possible.
Chicago-based M1 Finance, launched in September, allows investors to buy partial shares of individual stocks and exchange-traded funds. M1 is the brainchild of CEO-founder Brian Barnes, a fresh-faced fellow at 27 who just earned his bachelor’s degree from Stanford in 2012.
Barnes explains this stuff as only a young investor not jaded by jargon can.
“With fractional shares, every penny can get put to use,” he says. “The purpose of investing is to move out of cash and into assets. Without fractional shares, you build up cash waiting to make a purchase. With fractional shares, you don’t have to wait.”
Barnes cites the other liberating aspects of buying chunks of high-priced shares. These range from better portfolio diversification to more regular investing of money, in the same sort of consistent streams utilized by automatic bill pay, for example.
All of this, Barnes says, “effectively turns individual investors into portfolio managers — where they can have as little as 1 percent of their portfolio in Apple ( AAPL) or Google, regardless of how large or small of an investment that is.”
And if you already own shares of a stock that has since priced you out of the market, there is good news in the same vein. “Fractional shares can be purchased through a DRIP or dividend reinvestment plan,” says Joseph Ventura, founder of Eden Financial in Albany, New York. “It’s done directly with the company and not via a brokerage account, so DRIP participants pay no commissions or sales charges.”
[See: U.S. News & World Report’s 10 Top-Ranked ETFs.]
In fact, the fractional concept even applies to bitcoin, to the point where newfangled ATMs — known as BTMs — allow you to deposit small sums of cash and get a receipt that indicates how much bitcoin you just bought. One such terminal even exists at Amsterdam Falafelshop (yes, a real-live falafel shop) on 14th Street NW in the District of Columbia. Save some of your cash, though: a quick call there indicates that they won’t take bitcoin for your lunch order.
Another way to nab stocks with a stratospheric share price is through forming or joining an investment club. Like a lottery pool or two couples sharing a multi-unit property, investment clubs allow people to combine financial resources, in this case funding a larger stock purchase or portfolio even as the members further their education and experience with the market. Such clubs have been around for decades, and typically proliferate in communities and regions far beyond the bustle of the trading pit.
Yet to expand on that lottery pool comparison, a loosely organized herd of amateurs can easily succumb to hit-the-Powerball-jackpot fever.
“Unless you’re looking for investment clubs from a social aspect, I am not a big fan,” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. “Investment clubs often suffer from groupthink.”
It’s one thing if club members come from diverse socioeconomic backgrounds and have unique market perspectives that make for healthy debating. “But too much homogeneity in terms of club composition can result in people looking at opportunities from the same or similar perspectives,” Johnson says.
When it comes to sky-high stocks, Johnson raises two salient points. First, there are many under-the-radar stocks that also cost a boatload to own: They just don’t grab the headlines as much as sexy high-tech affairs. He points to the homebuilder NVR ( NVR) and specialty insurance underwriter Markel Corp. ( MKL) as examples; their shares sell for $2,459 and $974 respectively.
Second, those who seek expensive stocks often confuse the quality of the product with that of the company as a whole. Consumers love Tesla’s ( TSLA) electric cars. But over the last 12 months, this stock that now trades at $370 (and is up 72 percent over the last year) has earnings in the same period of $4.77 — as in minus $4.77. Overvalued? You bet.
What’s more, many high-ticket stocks pale in comparison to the great investments found in bargain basement country. And should you ever get discouraged, remember: Some stocks are pretty much outside everyone’s price range.
If you had $150,000 to blow, you could land a median-priced home in Omaha, Nebraska, where Buffett lives. But forget buying a share of his beloved Berkshire Hathaway Class A stock ( BRK.A). Right now, that’s going for about $257,510.
[See: 10 Great Tech ETFs That Stay Under the Radar.]
Not even a second mortgage on your Omaha home is going to help much there — though that represents, almost to the dollar, the 2017 equivalent of what Buffett paid in 1958 for the house he still calls home today. And when your home is long paid for, who cares much about missing the boat?
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How to Buy Sky-High Stocks originally appeared on usnews.com
