What's the smallest number of shares of stock that I can buy?

By Investopedia Staff AAA
A:

The answer to this question is not as straightforward as it seems. Many people would say that the smallest number of shares that an investor can purchase is one, which is true if you are buying from your broker or on an exchange. But unless you're buying Warren Buffett's Berkshire Hathaway - which was trading at around $109,100 in February 2007 - buying one share at a time isn't the most effective way to buy stocks. This is because the commission on the trade does not depend only on the amount of shares you are buying or selling. You are charged the full commission regardless of whether you buy one share or a whole board lot.

However, the answer to this question is complicated by something called a dividend reinvestment plan (DRIP). A DRIP is a plan in which a dividend-offering corporation or brokerage firm allows investors to use dividend payouts to purchase more of the same shares. As this amount "drips" back into the purchase of more shares, it is not limited to whole shares. Thus, you are not restricted to buying a minimum of one share, and the corporation or brokerage keeps accurate records of ownership percentages. For example, if you were enrolled into the DRIP of Cory's Tequila Corporation (CTC) and you owned one share of CTC - which pays a dividend of $2 per share and is trading at $40 - the $2 dividend would be automatically used to purchase 0.05 ($2/$40) shares of CTC. The reason DRIPs are so popular is that most of them don't have commission or brokerage fees, so it is cheaper for investors to increase their holdings and use their dividend payouts without having to pay extra fees.

For related reading on this topic, check out The Perks Of Dividend Reinvestment Plans.

RELATED FAQS

  1. How many times has Warren Buffett been married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were anything but conventional.
  2. What is Warren Buffett's investment history with the Washington Post?

    Learn why one of the richest men in America passed up the opportunity to take over one of the nation's most celebrated and ...
  3. What's the best way to contact Warren Buffett?

    Learn how to contact Warren Buffett and what kinds of contact is most likely to receive a response from him or from his company, ...
  4. What strategies are used in a redemption mechanism?

    Find out how the ETF redemption mechanism works and how authorized participants arbitrage ETF shares to bring them in line ...
RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  4. Acquisition

    A corporate action in which a company buys most, if not all, ...
  5. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
  6. International Finance

    Definition of international finance

You May Also Like

Related Articles
  1. Investing

    What is Warren Buffett's investment ...

  2. Trading Strategies

    Trading On The Psychology Of Round Numbers

  3. Trading Strategies

    A Legendary Market Skill Experience ...

  4. Stock Analysis

    The World's Top Ten News Companies

  5. Active Trading Fundamentals

    How does the "Buffett Premium" increase ...

Trading Center