This might sound simple for those who are already in the investing world or have been on this journey for a while, but something I remember from when I started out is how surprised I was about capital appreciation through multiple shares.
My purpose here is to explain this to those of you who are starting out. When you buy a share of Coca-Cola, for example, and you see that it went up $5 in a day, that means that a share of the company went up five dollars.
If you have 10 shares of Coca-Cola for example, and the stock (shares you own) has gone up five dollars, you would multiply $5 by your 10 shares. Your shares would have returned $50 total for that day in terms of capital gains.
As beautiful that sounds, it’s important to remember that wealth is built through playing the long-term game. You don’t want judge your investment by the days because the stock itself can go up 5% or $5 one day and then down 1% or a couple of dollars the next day.
Over time, the goal is for your shares to increase in value. It’s not going to be linear.
If you look at a graph, you’ll see the graph even though going upwards has its dips here and there. So if you were to zoom in on those dips you would see some ugly losses, however when you zoom out you see a better picture of how the company is actually doing long term for investors. Again, it’s not going to be a straight line going up.
Long-term investors, those who truly want to build financial security, lean into this and understand that the more shares of a stock they own, the more capital appreciation comes their way through their holdings.
This leads me to my next point: to ensure your capital appreciates long-term, you need to understand what you’re holding. You don’t want to just jump into something because you read about it on an online forum or because someone told you it was a hot stock. It’s truly important to understand what you’re holding.
Lean towards productive assets that you can tangibly see and understand what the company does. For example, we know Coca-Cola produces soda. We know they are known for their number one soda, and that there are die-hard fans who will always choose Coca-Cola over Pepsi or anything else.
If the executives at Coca-Cola dare to change the recipe, people will be upset, as they once tried to in the past, and people were livid. We also know it’s a company that’s been around, it’s going to be around, it has survived wars, recessions, economic meltdowns, and it’s a very mature company. It would take a lot for it to go bankrupt. I’m not saying it couldn’t, but it would take a lot for it to go bankrupt.
But if you invest in a brand-new company, like Ollipop for example, you don’t know its longevity because it hasn’t been around long enough. Even though it’s all the hype and it may look good on a balance sheet, maybe for a while, you can hold it if it’s a reasonable investment, but you want to make sure you’re not getting into it just because it’s the hype. Trends come and go; even health trends come and go.
Back to my point: part of my own personal success, and something I was recently reminded of as I added a new position to my investment fund, is how multiple shares really do contribute to the long-term payoff of your position versus buying a single share.
It was nice to be reminded of this because, over the last year, I had set my personal portfolio on autopilot where $100 was automatically sent to my Vanguard account into an ETF. This amount was not enough for a complete share, and even though I saw my investment portfolio go up, it was nice to see what happens when you own entire shares of a company.
That is why I wanted to write this. Again, this is part of the longevity game that most buy-and-hold investors, or those who truly build their wealth through the stock market, play. ( My household recently hit a milestone with shares of Coca-Cola allowing for the natural work of compounding. )
It’s not just about the short term, what’s hot, or what looks fun or nice on the balance sheet. It’s about what’s going to grow and how many slices of the pie you can get, or how big your slices of the pie can become for that company once you figure out which company you want to hold on to.
And make sure you’re paying a reasonable price for it. If you buy at the top or at a point where earnings exceed the return on your investment within a reasonable time, you won’t garner a decent return on your investment
Look at the chart I shared of Coca-Cola stock and pinpoint the peak in 1998 before it fell back down and took years to reach that peak again. If you bought in at that time it would have taken years for you to make a return on your investment plus what you had already put into the market.
However, some investors like myself like to dollar cost average over time instead of throwing in a lump sum of cash so no matter when we buy over a long period our cost basis should average out at a nice per share price which then allows a nice return.
Simpler terms: if you had put a lump sum into Coca-Cola, ticker symbol KO in 1998 and then left it alone, never bought anymore, your investment would have floundered until 2014/2015.
However, dollar cost averaging would have brought the cost basis down, which is how much you paid for ownership of the stock, where you then had a chance to recoup your initial investment and garner a return.
Sometimes lump sums make sense if you are able to read financials, and understand the intrinsic value of a company such as a value investor, however, for many dollar cost averaging is a great tool even for expert investors.
Also understand that just because a company is promising like Coca-Cola doesn’t mean that is where you should put the majority of your investment, because A) No stock is safe no matter how stable it is and B) you risk falling on the wrong side of opportunity cost.
This means understanding that sometimes there’s a certain investment that looks great, and sure, you can hold on to it, but there might be somewhere else you can put your money and get a better return.
Disclaimer: This post is for informational purposes only and should not be considered investment advice. Always conduct your own research and consult with a financial advisor before making any investment decisions.
The Broke College Student 
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