Many years ago, when I was much younger, I heard the saying “You have to have money to make money.” I didn’t understand the full meaning of that saying until I started investing in the stock market.
I originally started investing in the stock market using a little extra cash I had. It was only $200 but it was all the free cash available. Not quite understanding the saying yet, I invested that money in 50 shares of a company that were priced at $3.25 each. Those 50 shares cost me $162.50 plus a commission of $25 dollars for a total of $187.50.
I was pretty proud of myself for making my first step to a fortune in the stock market. It wasn’t until I started doing some calculating that I realized since it was going to cost me another $25 commission to sell the stock, it would have to rise in price by about 30% for me to break even! Being a little naive about the stock market, I figured that 30% shouldn’t be too difficult for my llittle stock to manage.
That was when I learned my second lesson about the stock market. A $3 stock is a $3 stock for a reason and it was not likely that I would make a fortune anytime soon! I held onto that stock and watched as it slowly trailed down to about 90 cents before I eventually sold it. After paying the commission, I was left with about $20. Lesson learned.
Several years later, when I had managed to save up a little more money, I got back into the stock market with a purchase of some higher quality stock at $20 per share. That stock moved up to $25 per share and I made a little money. The point is that with the larger cash balance I started with I could buy a higher quality stock with a better chance of realizing a positive return.
More money + higher quality stock = better chance of a positive return