Appropriate cost ratio of buying stocks?

[scp]

When buying stocks or ETFs, is there a general ratio for how much you should buy, e.g. if commission is $5, should you buy at least $100 worth of a certain stock to make it worthwhile?

[Broken Arrow]

My personal feeling is that I don't want it to be higher than the expense ratio of mutual funds that I would be interested in buying if I wasn't buying stocks.... However, unless you have a large trading amount, it's very difficult to avoid that....

As for how much you should buy, I think that depends on your trading strategy. Believe it or not, but buying as "little" as $200 to $1000 at a time can be perfectly reasonable IF that's your trading strategy. Day traders do that all the time, and they'll make as many as a dozen or so buys and sells like that per day. (Which adds up to a lot of crazy fees in my opinion.)

You wouldn't want to buy only $100 worth at a time though.... Some stocks cost more than that, and even if it isn't, the fee ratio (of 10%) is way too high in my opinion.

Personally though? I do everything I can minimize my fees, and thus, trading in general. So, I try my best not to over-trade, and when I do buy in, I buy in big. BUT AGAIN, that depends on your trading strategy.

[jIM_Ohio]

Keep expenses to less than 2% of total transaction and be below 1% if at all possible.

Any solid mutual fund will have expenses less than 1%, and many will have expenses less than .75% (3/4 of one percent) and some even as low as .15% or lower.

If you are paying 5% you will be going uphill against more cost efficient strategies.

[Johansen8]

I look for a stock that shows a pattern of consistent growth, first of all, say a minimum of 10% average annual growth for the last five years in earnings per share, sales, book value per share, and free cash flow. Next, it should have a wide moat, something distinctive about the product or company that protects it against competitors, for example a widely recognized brand name, a patented product, or a way of producing a product at a cheaper price. The company should also be efficient, with at least 10% Return on invested capital and healthy profit margins. Make sure that the management is knowledgeable, smart, and places stockholders' interests first. Watch out for CEOs and management that are looting the company at stockholders' expense. I also look for companies that are trading at a discount to their fair value. These are the main things.

[Broken Arrow]

Good list, Johansen8. Buffett would be proud. The last recommendation is worth emphasizing. It is entirely possible to lose money on perfectly good companies simply by over-paying for them. That's Graham's angle anyway.

However, Buffett believes that it's still better to buy a great company at a fair price than to buy a fair company at a great price.

Of course, the ideal is to buy a great company at a great price. In practice, that's what Buffett typically does....