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View Full Version : "How much do you need to get started?" by Jim Cramer


August 2nd 06, 03:48 AM
Jim Cramer says:

"Given that you need at least five stocks in the portfolio to take
advantage of the free lunch of diversification, how can you build a
diversified portfolio of stocks for, say, less than $2,500? That leaves
each position with no more than $500 per stock, making it so you simply
can't own enough of any good stock north of $10." (Real Money, pp.
75-76)

His logic here doesn't make sense to me. To me he is saying that if you
buy 50 shares of a "good" $10 stock, that's acceptable. But if you buy
5 shares of a "good" $100 stock, that's no good because you don't "own
enough". Why does it matter if I buy 5 shares of a $100 stock, or 50
shares of a $10 stock? Either way I'm going to pay the same commission,
and I'm going to get some percentage return on $500. Am I missing
something, or does his logic not add up?

undream2
August 2nd 06, 07:07 AM
If you really want to be diversified I totally agree with jim cramer.

Why, would it matter if you are investing $500 in $10 or $100 stocks?
Your total average percentage gain will be of the $2500.

If the $100 stock goes up 30% and a $10 stock goes up 30%. Its the
same. So it doesn't matter if you have $500 to invest in 500 or 1
share. # of shares don't matter. Its your percentage of return.

Also, Why do you have it in your mind that $100 stocks are better than
any $10 stock? I would rather buy a great $10 stock than a crappy $100
stock.

August 3rd 06, 12:31 AM
although many will disagree here. it is proven logic you wil make more
money with the 50 shares than the 5 shares. on good news , for whatever
reason, a smaller stock will go up .50 to 1 dollars that day. and for
the same good news, a 100 dollars stck will go up 2 or 3 dollars that
same day.get the idea?

REVELATION: CHAPTER 16; VERSE 8 & 9

undream2
August 4th 06, 02:10 AM
wrote:
> although many will disagree here. it is proven logic you wil make more
> money with the 50 shares than the 5 shares. on good news , for whatever
> reason, a smaller stock will go up .50 to 1 dollars that day. and for
> the same good news, a 100 dollars stck will go up 2 or 3 dollars that
> same day.get the idea?
>
> REVELATION: CHAPTER 16; VERSE 8 & 9


If you are going to take the time of being diversified. Its safe to
assume you don't care what a stock did in 1 day. Your an investor not a
day trader. Your looking for quality not quantity. Also, if there is
bad news the next day. What will stop the $10 stock from going down $3?
While, the $100 stock does up $1. Get the idea?

On another note.

To be diversified, you don't have to have the same amount of money on
each trade. What I do is put more money into less riskier stocks, Then
less money into riskier stocks. With each stock in certain industries
that don't effect eath other.