Does Stock Price Matter?

[tifnglen]

Hey all,

My SO has a theory about some mutual funds in his IRA that I dont know if I follow. He says that he goes with a lower price mutual fund because with the lower priced ones you acquire more shares. For example, he looked at 2 aggressive funds (sorry dont know the names) and they were bothe performing well but one was around $120/share and the other was $16/share. He went with the $16/share fund. Does his logic make since?

[sweeps]

No, it does not make sense at all. The share price is the total value of assets divided by the number of shares. The $16 fund is just lower because it holds less assets or it has divided its assets into more shares or both.

There is an exception for closed-end funds, but I assume that's not the case here.

[disneysteve]

Just to be clear, your title asks about stock price but your post asks about mutual fund share price. Those are not the same thing.

I agree with sweeps. The fund share price really has no bearing on performance. Let's say you invest $1,000 in each fund. If, over the next year, both funds gain 10%, your investment in each would now be worth $1,100. That is in no way affected by the share price. It is the performance (and expense ratios) that matter.

[Slug]

It's only relevant if you don't have enough $ to buy what you want. Otherwise, I'm in complete agreement with sweeps and DS. A good example would be BRK.A and for many people BRK.B. When I was starting out, I sure wish there would bave been a BRK.C

[sweeps]

It's only relevant if you don't have enough $ to buy what you want.

Even this is not an issue nowadays because everyone supports fractional shares.

[Slug]

Even this is not an issue nowadays because everyone supports fractional shares.

I can buy fractional shares of Berkshire Hathaway? Through what brokerage? Do I have to buy at least 1?

[disneysteve]

I can buy fractional shares of Berkshire Hathaway? Through what brokerage? Do I have to buy at least 1?

I don't know that you can.

Again, as I pointed out above, mutual funds and individual stocks are different. The OP was asking about funds, not stocks (even though the title was about stocks).

With stocks, the price is much more subject to manipulation by the company through splits, reverse splits, share buybacks, etc.

[sweeps]

Berkshire Hathaway is a stock, not a fund. But your point is taken.

[tifnglen]

OK thanks for your responses. I use stock and mutual fund interchangebaly. I need to correct that thanks

[humandraydel]

Sharebuilder allows you to buy fractional shares.

[Broken Arrow]

With a few exceptions, I personally have never seen the value of stock splits either. It'd be nice to think that we're beyond cheap parlor tricks like that now, but I guess not?

While buybacks are also a form of manipulation, I do believe there is some substance behind it. Holding 100 shares out of 1 million is better than holding 100 shares out of 10 million of the same company, how ever small that percentage increase may be.

That said, I agree that buybacks are not always what they seem either, such as when company is buying them back at the cost of some other factors such as lingering debts, reduced dividends, and/or reduced R&D.

[humandraydel]

Buybacks increase the Earnings Per Share (since there are less shares), which theoretically should increase the stock price.

[Snave]

[QUOTE=Broken Arrow;160035]With a few exceptions, I personally have never seen the value of stock splits either. It'd be nice to think that we're beyond cheap parlor tricks like that now, but I guess not?
QUOTE]

The only thing this is good for is the exact reason this post was written in the first place - the psychological factor. Some people see the "lower" value and decide it is a better buy b/c they do not really understand the market and think if they have more shares, they will make more money.

[noppenbd]

Psychological factors are often pooh-poohed but there is a lot to the field of behavioral economics that points out that psychology is a big factor in investing. Just look at all the excitement every time the DJIA passes a threshold (10000, 11000, etc). And you will often see an index or a stock price find "support" at a certain number which often has no empirical significance except for historic precedent.

[Broken Arrow]

Hehe, yes, I agree, and understanding that gives you a tiny bit more edge to invest against the herd rather than run with it....