For once, trashy magazines are correct. Size does matter. Anyone who tells you otherwise is probably trying too hard to make you feel better about yourself. But the good news is, bigger isn’t necessarily better. It’s how you use it that makes all the difference. Of course, I’m talking about the recent change by the Singapore Exchange, or SGX. You no longer need to buy standard lots of 1,000 shares. As of 19 January this year, the new standard lot size is 100 shares.
This change was meant to benefit investors like you and me, by making a wider range of stocks accessible and affordable. Here are 5 ways to make the most of the smaller SGX lot sizes.
The reduction in the lot sizes means that small-time investors now have more opportunities to diversify and invest in a wider range of industries and companies. There’s no longer that wide gap between penny stock gamblers and blue chip traditionalists. Instead, now you can consider buying shares in small and medium enterprises that have steady revenue and respectable dividend yields.
Because of the smaller lot sizes, shares in an IT company like CSE Global now cost about $60 per lot, rather than $600. Luxury hotel chain Stamford Land also costs about $60 per lot rather than $600. Even airline caterer SATS now costs about $300 per lot rather than $3000.
Having smaller lot sizes means that you can now seriously consider buying shares in companies that may not have fit your investment plans before, perhaps because they were beyond your budget or outside of your comfort zone.
2. Buy blue-chips
“Blue chip stocks”, or shares in profitable, long-established companies, are generally known for their stability and for paying out good dividends. In other words, most of the time, once you buy blue chip stocks, you can probably count on a steady income from dividends.
Naturally, these blue chip stocks do not come cheap. However, with lot sizes reduced from 1000 to 100 shares, that means you can now afford to buy blue chip stocks that were once out of your reach!
Well, not just any blue chip stock, of course. In that past, buying one lot of DBS would cost almost $20,000. Now, you can buy one lot for less than $2,000. It’s still quite a fair bit of money, especially when starting out in investments. However, there are several blue chip stocks that are now more accessible to investors.
SPH, for example, used to cost about $4,000 per lot of 1000. Now you can get a lot for slightly over $400. A lot of CapitaLand would have cost about $3,500 per lot. With the new rules, you can buy a lot of 100 shares for about $350.
Just don’t forget that the dividends are paid out according to the number of shares you have. So even though you now have access to blue chip stocks, you will not be earning as much dividends.
3. Don’t get caught by high commission fees
Unfortunately, most brokerage firms have not adjusted their commission fees. Many of them, such as Maybank Kim Eng and OCBC Securities charge a minimum of $25 per transaction. With the reduced number of shares per lot, you may not need to transact more than $500 each time. Being stuck with a minimum of $25 means that your brokerage fees could be eating up your profits!
What you need to look out for are brokers like Standard Chartered that don’t have a minimum commission fee. Alternatively, DBS Vickers is offering a promotional minimum commission of $9.88 per transaction, if the contract value is less than $3,888. Phillip Securities is offering a promotional minimum commission of only $10 per transaction if the contract value is less than $3,500. Both promotions require that you buy less than 1,000 shares online. DBS’ promotion lasts till 27 Feb while the Phillip promotion lasts till 30 June this year.
4. Don’t expect to make a quick buck
As with any good investment, think long-term gains and not short-term gains. Although the lot sizes are smaller now, it hasn’t exactly translated to a massive surge of investors jumping into the stock market. As a result, stock prices have remained largely stable, and still more reliant on major investors rather than the small-time newcomers.
Basically, you’re still a small fish swimming in big pond. Though you now have more access to stocks, you still don’t have the power to influence prices. There’s no more chance of getting rich quick now than before.
5. Dollar Cost Averaging is still the best option
Because you should be looking at long term investing, your best bet is therefore to consider the benefits of dollar cost averaging. We’ve shared about this before, but basically the idea is to invest a fixed amount of money into the stock market regularly, so as to avoid the impulsive buy-low, sell-high behaviour that causes stock market investors to stay glued to their screens all day.
By investing the same amount of money, regardless of the stock price, you should find yourself ignoring fluctuations in market price and earning profits via dividends, especially the longer you can commit.
Of course, you need to do research before you embark on dollar cost averaging. No amount of sound investment advice will make investing in a lousy stock a genius move. If a company’s share prices are in freefall, you should be staying far away from it, not jumping onboard. The best stocks to make the most profits on are the ones who have dropped in price now, but are eventually going to recover, like good oil and property companies.
How have you taken advantage of the new SGX lot sizes? Let us know.