People ask me investment questions all the time. A few of them get repeated a LOT, things like;
"How much money should I put into this company?"
"How long should I keep the shares for?"
Those two get asked the most and it gets tiring answering sometimes and I also may not always do the best job explaining it in the moment so I'm doing my best to lay it out for you now. So here we go.
So the 1st question "How many shares should I buy?" or "How much money should I invest?".
Answer? "As much as you want".
Here's the thing, your investment is your investment. When buying shares in a company, unless you have enough money to buy a significant percentage of that company's total shares (think $30,000,000 and upwards...WAY upwards), the number of shares you own isn't really significant to anyone else but you.
If you buy $100,000 worth of Seprod, it doesn't matter (98% of the time..I'll explain the 2% later) how many shares you got for that $100,000. They are worth (at the time you got them) $100,000. Now lets say that over the next 2 weeks, Seprod's share price increased by 20%. Congrats, the shares you got (whatever amount you got, remember, the amount doesn't matter) is now worth 20% more than it was when you bought them. So now your investment in Seprod is worth $120,000; $100,000 plus 20% more ($20,000).
This is the crux of buying shares (98% of the time). The amount you get, is unimportant, the VALUE of it is whats important. When you decide to sell, do you care if you're selling 2,448 shares or do you care that you're getting $120,000 in return for a $100,000 investment? Im gonna guess that its the latter. Once you understand this concept, then the question gets answered easily. "How much should you buy?", any amount you want to invest (as long as its 100 shares or more, cause thats the JSE minimum buy..this is part of the 2%). A second consideration is that the more you invest, the more money you potentially make when the share price rises, and yes, it also means you lose more if the price falls, so you should determine how much you want to gain, and secondly, how much you're willing to lose. Its very personal.
Now to the second question, "How long should I keep the shares for?"
This one is also very personal, it really is up to you, I'll write another post going in depth about different investing strategies but ill give the simple version here. Its up to you. I encourage everyone to have an investment plan and invest accordingly.
In even simpler terms, the investing plan may just mean that you have a target price or a target percentage gain at which point you act. So if you want to make, lets say, 20% on your $100,000 investment, when the price has risen by 20%, then you know its time to sell (or hold for longer if you think theres more to come). So YOU determine your exit point. This is key to note. You want to be the one in control of this, not someone else...certainly not your bank cause then you're gonna go home with a nice 0.7% and they're going to pocket the rest.
So, to recap; "How much should I invest?"
As much as you want. The amount of shares you get is mostly unimportant. The VALUE of those shares is what you should care about because when you're ready to cash them out, its the cash that matters, not the share count.
"How long should I hold the shares for?"
Until you've made enough money off them or don't want them any more, in either case, YOU are the one who determines that. When you think you've made enough money, or made the money you set out to make (or more, as per your investment plan) then sell them and go enjoy your funds.
I hope I cleared these 2 issues up for you, if not, you can shoot me a line right here in the comments, or on Twitter if you want. Im always open to helping if I can. I'll be back soon with more info and answers to your questions hopefully, and if I'm not, hit me up asking where the next post is.
Here's hoping you join me on the Gains Train.