Because you usually must pay a trading commission of $9.95-$29, it’s usually best to buy and sell significant numbers of shares to lower the cost per share for the transaction. There are some circumstances, though, where it’s worth buying or selling only a few shares. Here’s why:
TFSA Limits Require Buying Fewer than 100 Shares
Some stocks are expensive. At the time of writing this, a single share in the TD Bank costs $81.70. That means 100 shares of TD would cost $8170 plus the fee.
The annual TFSA contribution limit for 2013 is $5500. The annual limit for 2012 was $5000.
So in 2012, you could only buy $(5000-fee)/81.70 shares of TD with that year’s TFSA contribution. If the fee is $29 exactly, you could buy only 60 shares. (You’d be left with a few extra dollars: you can’t buy partial shares through most online brokerages.)
Similarly RRSP and RDSP limits may also require buying fewer than 100 shares.
RESP Limits Also May Limit the Number of Shares Purchased
RESP limits may be even smaller than TFSA limits. In fact if you only have one child and you are only planning to contribute the amount per year matched by the government CESG (grant), you could be investing as little as $2500 per year. That won’t buy a lot of shares of CNR at 98.40, today’s price.
Adding to a Stock Position with Incremental Purchases
Sometimes, you like a stock so much you want to buy and hold it for months or years. In that case, you may decide you want to add more to your collection when you see it at a good price. You may have a limited amount of cash available to invest, though. For instance, you might have received dividend payouts from several other stocks, plus a capital gain on a small sale.
Again, you may decide you want to buy say, 50 shares of CNR to add to your existing shares.
The slight advantage of this strategy is you only have to pay one fee when you sell all of your holding in the company, even if you had to pay several fees to buy the shares. For example, if you bought CNR 3 times and then sold it all off at the end, you would pay 3x$29+1x$29 = $116 in fees. If you bought and sold CNR three times, you fees would be 3x$29+3x$29 = $174.
Taking Partial Gains by Selling Part of a Stock Holding May Require Selling Fewer than 100 Shares
Sometimes a stock does well, in fact really well. It’s tempting to hang onto it hoping it will continue to go up in value. But a nagging voice inside may say it would be better to take the profits in hand now. After all, at any time a stock can also plummet.
For instance, as I was tempted to take $15 a share profits in CNR the other week, the stock fell $5 a share on a low earnings warning for Norfolk Southern. Oops! Waited too long.
One compromise approach is to take partial profits.
Say you bought 150 shares of CU at $50. After 8 months, the shares have increased in value by 20% which is an increase of $10 per share. You may decide to sell 50 of your shares. That would ensure you a profit of 50x$10 = $500 (less fees) on an investment of 50x$50 = $2500.
Your remaining 100 shares could continue to earn dividends and hopefully continue to increase in value. Meanwhile you could take your original $2500 plus $500 (less fees) profit and try to find another investment with the potential to grow 20% or more, again.
The actual number of shares you keep or sell isn’t particularly important. What is important is that you can sell fewer than 100 shares if it helps you manage your money and risk effectively.
Disposing of Split Shares
You may also want to sell a small number of shares is after a company reorganizes its stock. For example, you may own 100 shares in Really Big Company. Then, they reorganize, spinning off a new smaller company. As a shareholder, you may be given an additional 25 shares in Really Tiny Company as part of the deal. If you don’t want them, you will want to sell them. Luckily, it is possible and permissible to sell just 25 shares.
This is exactly how I ended up the proud owner of 4, yes 4!, non-voting shares of Telus stock. I won’t tell you the obscene capital gain I have earned to date on those 4 shares, by the way. Let’s just say we could do lunch!
- The Risks of Higher Fees from Partial Sales and Partial Buys
- Can I Buy or Sell a Small Number of Shares of a Stock, Say 18?
Have you ever bought or sold fewer than 100 shares? What made it worth your while? I’d love it if you would share a comment with your experiences.