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Investment Conundrum

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Comments

  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    edited 26 April 2019 at 11:09AM
    lindabea wrote: »
    You say that units don't matter, but I don't understand why you say that. Surely, future gain is dependent on how many units you hold and not just the amount invested, since gain is units X current price. So if you take yesterdays' price, the units bought in 2017 would have a greater value (118x187.85) than those in 2019 (106x187.85). Now if you extrapolate this trend into the future, can you not see that the potential gain is greater from earlier years?


    Well duh! :D

    Possibly, here is your mistake.

    So if you take yesterdays' price, the units bought in 2017 would have a greater value (118x187.85) than those in 2019 (106x187.85). Now if you extrapolate this trend into the future, can you not see that the potential gain is greater from earlier years?

    Thats a completely invalid comparison to make.
    The units bought in 2017 are, in 2019 the same price as the units you bought in 2019, 187.5.

    So all units go up the same amount in 2019-2020. But you are retrospectively counting back to a previous price that the newer 2019 units never had.


    Now yes, you have more units of the ones you bought when they were cheaper, but thats simply a result of them being cheaper to buy in the first place. Your statement is akin to saying "units bought when they were cheaper so i get more make more profit than units bought when they were more expensive" Well, no s*** Sherlock :D

    Suppose you invest £20k in Acme at £100 a share. Yes you have 200 shares but thats irrelevant, if the share price at that time was £200 you'd have 100 shares or if it was £50 you'd have 400.
    When the share price of Acme doubles, whats doubling is your £20k. The shares, after that doubling would be either £200, £400 or £100. Doesnt matter. They are double what you paid.
    If they went up 10% then its your £20k that goes up 10% to £22k and the number of shares you happened tp buy makes no difference they went up 10%. You are basically, somehow working backwards as if the number of shares is relevant but that, as i said earlier, is simply a function of the price and coming to the amazing conclusion that its better to buy shares when they are cheaper!

    Going back to my real example, say i had $10k in Apple shares at $700 each back inthe day. After they split I still had $10k in Apple shares at $100 each but 7x the shares. They are now $200. So I've got $20k. If there was no split the shares would be $1400 each yet I'd still have $20k
  • coyrls
    coyrls Posts: 2,489 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper
    You only have the option to buy at the current price or wait and buy at an unknown later price, you do not have the option to go back in time and buy at a lower price.
  • lindabea
    lindabea Posts: 1,507 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I think the penny dropped now. Thank you Bowlhead and AnotherJoe for your explanations and indeed your patience. :T

    I can see now where my thinking is flawed. It happens quite often these days !!:(
    Before doing something... do nothing
  • Flobberchops
    Flobberchops Posts: 1,279 Forumite
    1,000 Posts Fifth Anniversary Combo Breaker
    Happy to hear you understand it a bit better now. At the risk of repeating what everybody else was saying - the number of units is fairly irrelevant (well, I suppose it becomes a bit more relevant when thinking about dividend payments). In general you want to buy low and sell high, so whether your initial investment is a gazillion penny stocks or half an Apple share, if the value of the stock goes up after your purchase then the value of your holding will likewise have gone up (good time to sell, if that's your intention).
    : )
  • Tom99
    Tom99 Posts: 5,371 Forumite
    1,000 Posts Second Anniversary
    I think the original question could be re-phrased.
    Is there more likely to be growth in a share which has stayed at the same value over the past year compared with another share which has doubled in value?
  • Alz1986
    Alz1986 Posts: 123 Forumite
    Fifth Anniversary 100 Posts
    AnotherJoe wrote: »


    To make it real, a few years back i owned Apple shares (and still do). They were $700 each.
    Then they did a stock split, 7 for 1. So the number of Apple shares i held went up by 7, and the price went down by the same factor of 7, to $100.

    I still had the same amount invested in Apple, it didn't increase or decrease the day after the split,and the value of Apple shares was the same as before. They were just as likely to double in the future at $100 or $700. The fact i owned, say $20k in Apple was what mattered, not how many shares, and I owned $20k worth of shares before the split and $20k after the split. My Google shares meanwhile have not split, they are now about $1,000 each. But the relative value of both remains the same, Apple arent 5x more likely to increase than Google merely because Apple shares are (now) $200 whilst Google are $1000.

    With your apple share split, would you say it generated more interest and removed a barrier for some retail investors who may not have wanted to pay $700 for the share, but happy to pay $100? Apple share price is currently just over $200 so it appears to have doubled in value in those few years since the share split.
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