I Want To Buy Shares In An Individual Company. What Do I Do?

I’ve been regularly contacted by readers who want to invest some of their money specifically in the stocks of an individual corporation for various reasons, mostly relating to people finding companies that match their personal values.

For most individual investors, there are really two options to follow when buying stocks of a specific company: DRIPs or via a brokerage. My personal preference is generally the DRIPs, though brokerages do have some advantages. Let’s look at both.

DRIPs, or dividend reinvestment plans, are plans offered directly by some companies that enable you to buy a small number of shares of a company’s stock, then have the dividends from these shares constantly used to buy more shares until you’re ready to sell them. These are nice for people who want to buy and just sit on the stocks for a very long time, contributing a small amount of money each month to buy more shares. Each time the company pays out a dividend, this money is used automatically to buy more shares in that company. DRIPs are incredibly effective ways for people to contribute a little bit of money each month and build up a lot of stock in a specific company they believe in.

The fees on DRIP plans vary hugely, and this is the reason that it’s difficult to offer a blanket “recommend.” Some of them charge a fee every time you buy more stocks; those are usually not worth your time. If the company you want to buy into seems to charge a lot of fees, don’t bother with a DRIP from that company. On the other hand, if you don’t see any fees – particularly no fees on regular, monthly purchases – a DRIP might be the best choice for an individual investor.

Brokerages, like Charles Schwab, are a bit more complicated, but if you’re trying to buy money in a company that has an expensive DRIP, they might be a better route if you’re careful. Generally, unless your brokerage is giving you a few fee-free trades a month, you’re going to have to pay each time you buy into that company – this is the real disadvantage of many brokerages. If you’re like me and just want to buy into a specific company perhaps once a year with a large lump sum and want any dividends to just pay out into your savings account, then a brokerage might be the best bet. However, I only went this route because the DRIP plan for the single company I wanted to invest in wasn’t particularly good.

The best way to do this is to open an account with your brokerage of choice (there are a LOT of options out there – I am using Scottrade), put some money in that account, and then execute a “limit” order for that stock. A limit order lets you specify the price you want to buy at – if you do a market order, you’ll just get the lowest price that someone happens to be selling at the moment, which is often higher than the current price of the stock. I usually put in a limit order for a bit below what the stock is currently trading at – a quarter of a point or so. Once you own the stock, just sit and wait.

I generally save up the money in a savings account that pays 5% and do a single “buy” each year into specific stocks, then I hold them and watch the company diligently. As long as I still like the company and how their business is doing, I hold. If something changes (and it hasn’t yet so far), then I will sell everything I have in one “sell.” This approach greatly minimizes the brokerage fees and in my case is quite a bit cheaper than the DRIP for the same company.

In a nutshell, if you’re interested in just one specific company to invest in, research their DRIP plan. If there doesn’t seem to be many fees, get involved with that plan. If the fees are excessive (basically, if the fees cost you more than 2% of the money you’re investing), look at a brokerage, especially if the DRIP says you have to pay on each reinvestment.

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18 thoughts on “I Want To Buy Shares In An Individual Company. What Do I Do?

  1. FIRE Finance says:

    Usually it is said that the management costs of our stocks or portfolio should not exceed 1% of the amt invested. So if the fees for a DRIP is > 1% it is better to go for a lump sum (single annual buy) of the company’s shares from a brokerage.
    Nice post, very well explained.
    Cheers,
    FIRE Finance

  2. Brip Blap says:

    I held many stocks through DRIPs, and finally I consolidated them all in a TD Ameritrade account. Personally I’m happier with everything consolidated in a single account – tax time is easier, trades are easier, and I like being able to check everything online at one time. All that being said, it’s slightly more expensive.

    If you want to invest in individual stocks, study for years, then invest. If you aren’t willing to put in a year or two of studying first, stick to index funds!

  3. Cindy says:

    Great Post! You missed one salient point about DRIPs though. For the most part, they require you to already own ONE share of the company’s stock to get started. You can’t just go to the company and sign up for the DRIP. To add to this, if you own one stock through a brokerage, it is a long and complicated process to get the stock issued to you in your name. The best way to get started is to have someone gift you a share of stock, it makes the paperwork easier.

    Sun at The Suns Financial Diary blog does both DRIP and brokerage accounts and has nice write-ups on both.

  4. jtimberman says:

    Never, ever, EVER buy shares in a single company if you want any kind of economic growth out of those shares. Buying shares in a single company carries an ENORMOUS amount of risk and is like gambling. Thats what day-traders do, and its why day-traders lose their shirt on a regular basis (quite literally).

    Sure there’s IPOs like Google, Red Hat, or VA Linux that do amazing things, but those are few and far between. For long term growth, only go with mutual funds as the amount of risk is far less than any investment with a rate of return that beats inflation.

  5. Thank you for the great post. I’ve just recently begun thinking of 1-2 companies I’d like to invest in and this cleared up a lot for me. I’d only just learned about DRIPs and I’ve heard very bad to very good things. Now it makes sense as I had no idea they’d vary so widely.

  6. John Jackson says:

    It sounds like it would be easier to trade online with a brokerage service. You will have more flexibility.

  7. Sharon says:

    If brokerage fees are an issue, wouldn’t using a zero cost brokerage be an advantage? Try http://www.zeccotrading.com. I’m currently using TD Ameritrade but am considering Zecco next.

  8. viola says:

    I use Scottrade since it’s $7 a trade…not bad. Also there’s Sharebuilder which is for investing the same amount of money each month. I don’t use it but it’s an alternative to individual company DRIPs.

  9. Ryan says:

    This may be helpful for someone who’s really looking to use some “play money” to buy a stock or two. But most of your posts are about frugality and debt reduction, which would make me think that most of your readers (myself included) don’t have extra money to throw in the ridiculously risky arena of individual stocks.

  10. Bill says:

    As long as everyone understands buying individual stocks puts you below the efficient frontier (for the return you get, you are taking on more risk than necessary):

    http://en.wikipedia.org/wiki/Modern_portfolio_theory

  11. viola says:

    Actually stock investing is only as risky as one’s lack of knowledge about the stock, its underlying company, and behavior of other stock investors in the market. The name of the game in stock investing is research, or as Kramer calls it “homework”. To reduce the gambling aspect, a proper entrance as well as exit strategy is necessary.

    Part of frugality and debt reduction is planning for what you will do with your money that can be spent on assets (constructive things) instead of liabilities (things that don’t add much to your life and suck money away from you). Investing is part of that.

    If you don’t have the time or inclination to educate yourself properly about individual stock investing, it’s better to buy an index fund or mutual fund. No shame in that. Both of which you have researched to compare performances, managment, fees, etc.

    Also I would guess that if someone wants to buy shares in an individual company but has not done enough homework (info easily available on the Net) to know how to do that, they don’t know enough to be putting there money into an individual stock. This scenario is indeed gambling and riskhy.

  12. Michael Langford says:

    One word: Sharebuilder (I’m not paid by them, just a very very happy user).

    http://www.sharebuilder.com

    You can do an automatic investment plan in many things, including individual stocks (but also in ETF’s). This costs $4 per item if you let it occur on a periodic Tuesday. As fees and costs are one of the most determining factors of profits…we’ll that nice low fee to buy securities is great news

    –Michael

  13. Michael Langford says:

    “To reduce the gambling aspect, a proper entrance as well as exit strategy is necessary.”

    Its not gambling, its speculation. Gambling is betting on chance events, speculation is betting on chaotic, but researchable events, especially on the price moving.

    One nice thing about individual stocks is that there are a lot of secondary strategies around reducing the risk of the stock via option buying. For instance, if you bought Apple, and you were afraid that it go down this quarter, perhaps a lot , you can buy what’s called a “Put” to allow you to sell your stock at a certain floor (Which is actually something mutual funds do all the time to hedge their stock purchases). You can do these strategies with index funds as well, but stocks are not inherently “super risky” as the top poster makes them sound.

    Mutual funds also have the issue they have to liquidate a stock carefully when they sell it or they’ll cause a stock price move that will hurt them as they sell, and they also have all those fees to pay the salaries of the people who run them. Those together sap your returns somewhat.

    Historically, the market makes ~13%, Mutual funds 9% and individual investors ~7%, so be careful though going out on your own. You need to research research research. Also remember: Diversification is the only free lunch. Buy some things of various risk amounts in totally different sectors, and you’ll do better.

    –Michael

    *Heard on Talk of the Nation

  14. Brian says:

    There are numerous outstanding companies that allow you to purchase even your initial(and subsequent) shares, as well as reinvest dividends directly from the company without any fees.

    The key to using DRIPS is to pick several sound companies(in several different industries for balance) and dollar cost average into them, just as you do with a workplace 401K for instance and consider them long term investments. This both spreads your risk of timing and stock picking.

  15. Ed says:

    If you are a Costco executive member you can sign up with Sharebuilder and get a $90 cash card in return. Not to shabby.

  16. CHESSNOID says:

    I use sharebuilder like Michael and am very pleased with them. I have been investing through them for over 7 years, just after the dot com bubble burst. When I signed up they had those free 50 bonuses. I don’t know if they still have them, but my experience has been good thus far.

  17. Art Dinkin says:

    To buy into a DRIP simply because it costs less is not a good idea. Do you know why companies make DRIP’s available? It is to create a constant market of buyers for their stock. When you purchase shares through a DRIP, the shares you receive can only come from treasury shares (meaning you are buying shares out of the company’s supply of their own stock) or the company has to buy them off the market. In a small way DRIP’s add to demand, and higher demand results in higher stock prices. That is why the stockholders hire a CEO… to drive stock price up.

    Without repeating several insightful comments already made, it would be inappropriate for most investors to hold issues of a single company. Some investors should not buy idividual issues simply because they do not have enough knowledge.

    Anyone who has to ask how to buy a stock probably also has no idea on how to sell a stock. There is no money to be made in BUYING stock. Money is made when you SELL a stock for more than you paid for it.

    By default, if you have to ask this question then the only way for you to properly buy stock is with professional assistance.

  18. John says:

    My reason for wanting to buy an individual stock share is for my Kid’s investment education. One stock of their choosing (favorite toy manufacturer e.g.) that they can see and feel while watching the price as it bounces over the years. I would be interested in any feedback on this.

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