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Author Topic: Hmmmm, my 2 cents worth  (Read 6026 times)

Snakepit

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Hmmmm, my 2 cents worth
« on: May 21, 2014, 08:15:21 pm »
Why buying expensive shares are not necessarily a good thing.

I have here 2 shares from the current leaders stack.

CPI    CAPITEC BANK HLDGS LTD    338    17695    22300    26.02%    R75,374.00    12.89%
NPN    NASPERS LTD -N-                   248    100650    122000    21.21%    R302,560.00    51.76%

Lets look at this a bit closer.
CPI - Capital layout = 338 x R176.95 = R59809.10
CPI - Profit = R223.00 - 176.95 = R46.05 x 338 = R15564.90
So for an exposure of +- 60 grand you made +- 15 grand

NPN - Capital layout = 248 x R1006.50 = R 249 612.00
NPN - Profit = R1220.00 - 1006.50 = R213.50 x 248 = R52948.00
So for an exposure of +- 250 grand you made +- 53 grand

The question - Is it worth buying the very expensive shares? If this user had stuck his 250 grand into the cheaper share he would have made a total of 5 times more money +- 77 grand instead of 15 + 53 = 68 grand

That is a 9 grand difference. Both shares are good shares.

Makes me wonder if you should have a high and low price. Under a certain price you have risk and over a certain price you have profit issues if I can put it that way.
« Last Edit: May 21, 2014, 08:23:32 pm by Snakepit »
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Patrick

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Re: Hmmmm, my 2 cents worth
« Reply #1 on: May 22, 2014, 10:47:33 am »
I'm not sure if the price per share is the issue here but rather growth. In your example, CPI gained 26% while NPN gained 21%, so for equal amounts invested that would be your profit difference.

Now you could say that because CPI is smaller they have more potential for growth, or that because NPN is so huge they can't be agile, but in the long run you'd be hard to prove either. In this case though, both are great shares, and if I knew something would guarantee me 20% pa I'd be throwing money at it, but as always, there are no guarantees!
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Neil

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Re: Hmmmm, my 2 cents worth
« Reply #2 on: May 22, 2014, 04:06:50 pm »
Quote from: Snakepit on May 21, 2014, 08:15:21 pm
Why buying expensive shares are not necessarily a good thing.

I have here 2 shares from the current leaders stack.

CPI    CAPITEC BANK HLDGS LTD    338    17695    22300    26.02%    R75,374.00    12.89%
NPN    NASPERS LTD -N-                   248    100650    122000    21.21%    R302,560.00    51.76%

Lets look at this a bit closer.
CPI - Capital layout = 338 x R176.95 = R59809.10
CPI - Profit = R223.00 - 176.95 = R46.05 x 338 = R15564.90
So for an exposure of +- 60 grand you made +- 15 grand

NPN - Capital layout = 248 x R1006.50 = R 249 612.00
NPN - Profit = R1220.00 - 1006.50 = R213.50 x 248 = R52948.00
So for an exposure of +- 250 grand you made +- 53 grand

The question - Is it worth buying the very expensive shares? If this user had stuck his 250 grand into the cheaper share he would have made a total of 5 times more money +- 77 grand instead of 15 + 53 = 68 grand

That is a 9 grand difference. Both shares are good shares.

Makes me wonder if you should have a high and low price. Under a certain price you have risk and over a certain price you have profit issues if I can put it that way.


Hindsight is child's play, foresight however is very difficult.
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Disclaimer:The views/opinions expressed in this post are that of the writer and are not to be interpreted as advice, nor as a indication to buy/sell any investment or equity. The writer will not be held liable for any profit or loss resulting from reading of this post by the reader in any form.

Orca

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Re: Hmmmm, my 2 cents worth
« Reply #3 on: May 22, 2014, 05:43:45 pm »
Exactly as I thought Neil.
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