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  Dear
Dr. Don,
I am very interested in the stock market. If
I look at a particular stock, how does it work to buy a share or
more? For example, I am currently interested in ATCO, American Technology
Company, and it traded recently at $9.05. How much would it cost
me? -- Chris Cumulative
 Dear
Chris,
You can buy a single share of stock but the transaction costs in doing
so severely dampen your potential returns. If you paid a $7 commission
to buy that one share your all-in cost is $16.05. Assume the same
$7 commission to sell the share, and the stock has to rise to $23.05
just for you to break even. Buying multiple shares spreads the commission
expense over more shares. Stocks typically trade in multiples of 100
shares. A 100 share bundle of stock is called a round lot, but retail
traders can and do buy in smaller quantities.
There are some alternatives to opening a standard
discount or full service brokerage account to invest. One alternative
is a direct stock plan (DSP) or dividend reinvestment plan (DRP)
offered by the company. There may be minimum purchase requirements
with these plans.
I didn't see one listed on ATCO's web site but you
can contact their shareholder relations department to see if they
have one of these plans. The advantage to a dividend reinvestment
plan is that you don't pay a broker commission, and some companies
offer shares at a reduced price. Still, if there are any account
fees at all you'll come close to what you would pay with a discount
broker.
Another alternative is a low cost brokerage account like Sharebuilder
where you can buy shares for $4 per investment with no account minimum
in its basic account. Selling the shares is more expensive at $15.95/order.
In contrast, a discount broker like Scottrade has a $500 account
minimum with $7 commissions for online trading including limit orders.
(Editor's Note: Dr. Don Taylor has a Scottrade account.)
Regardless of how you choose to invest, consider transaction costs
and account management fees as part of the decision to invest. If
you're taking speculative fliers on individual stocks hoping to
make some easy cash, remember the old adage that the best way to
make a small fortune in the stock market is to start with a large
one.
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