Is It Worth Buying Only One Share of an Expensive Stock?

Buying just one share of an expensive stock can seem daunting, and many investors hesitate due to the large per-share price. However, there are numerous benefits and strategies to consider when making this decision. Whether you are a seasoned investor or a beginner, understanding the potential gains and risks is crucial. This article delves into the pros and cons of investing in a single share of an expensive stock, along with tips for successful single-share investments.

Understanding the Value of a Single Share

While single-share investments might not seem practical at first glance, they can serve as stepping stones to larger investments. Consider a high-profile company like Berkshire Hathaway, whose shares are among the most expensive in the market. Despite the large initial investment, purchasing just one share can be a valuable learning experience. It allows you to become familiar with the company's financials, operations, and market positioning.

The Benefits and Risks

Proactive Learning and Profit

One of the primary advantages of buying a single share is that it can serve as a practical learning tool. By investing a small amount, you can experience the dynamics of the stock market firsthand. Additionally, even a small gain can be significant in terms of percentage returns. For example, if you buy one share of Berkshire Hathaway at $500,000 and it earns a 5% profit, you’ll generate $25,000 from just one share. This can be a motivating factor to continue investing and eventually build a more substantial portfolio.

Low-Cost Brokerage Options

For those who are just starting out or have limited capital, a low-cost brokerage platform is essential. Services such as Robinhood, which do not charge commissions for trades, can significantly reduce costs. Robinhood allows you to buy, hold, or sell even a single share without incurring additional fees. This means that your gains will be higher without any commission eating into your profits.

Scalability

Single-share investments also offer the benefit of scalability. With experience and the ability to make higher-risk, higher-reward trades, you can gradually increase your investment size. For instance, if you start with one share of an expensive stock, you can use the profits from that investment to buy additional shares or to diversify into other stocks. This gradual increase in investment size can lead to substantial returns over time.

Examples of Expensive but Successful Stocks

Large-cap stocks like Amazon and Berkshire Hathaway, as well as mid-cap stocks like Chipotle, fall into this category. These companies are known for their strong performance and steady growth, making them attractive for long-term investors. While the initial investment may seem steep, for companies like Amazon, the share price can fluctuate, offering the potential for significant returns.

For example, a single share of Amazon, currently valued around $3,000, can be a substantial investment. However, if the stock price appreciates by just 10%, you'd gain $300. Similarly, Chipotle at around $700 per share can offer a 10% gain of $70. While these gains are modest in absolute terms, they can be substantial for small investors just starting out.

Investing Strategies for Single Shares

Research and Due Diligence

Before making any investment, thorough research is essential. Understand the company's financials, market position, and growth prospects. Look for positive trends in revenue, earnings, and customer base. Reliable financial reports, analyst opinions, and industry news can provide valuable insights. This research can help you identify companies that are likely to appreciate in value.

Long-Term Holding

Investing in a single share is different from buying and selling frequently. Long-term holding can be more rewarding. Holding a stock for several years can smooth out the market’s volatility and potentially lead to higher overall returns. For example, holding a share of Berkshire Hathaway might not yield immediate profits, but over the long term, it could significantly increase in value.

Compound Interest

Even small gains over time can compound your investment. If you save up enough to buy more shares or reinvest dividends, you can leverage compound interest to grow your investment. For instance, if you consistently buy one share of a stock every month and it appreciates by 5% per year, your investment can grow over time, potentially reaching a substantial amount.

Conclusion

Buying just one share of an expensive stock is not for everyone, but it can be a valuable learning experience and a stepping stone to larger investments. Utilizing low-cost brokers like Robinhood can help minimize costs, and with careful research and long-term holding, you can maximize your potential gains. Whether you are investing for the first time or looking to diversify your portfolio, single-share investments offer a unique opportunity to engage with the stock market.