Invest Like A Pizza Eater

Date: August 29, 2013

Investing in Singapore just got a whole lot more interesting. The Singapore Exchange has proposed to reduce the board lot size from 1,000 units to 100 units. The lot size may be cut even further to just one unit in the future.

This is a monumental step for us private investors. It means that if we have a limited sum to invest but want to buy highly-priced shares, we can. In other words, if we only have a few thousand dollars to invest, we don’t have to restrict our choice to shares that are priced around the one-dollar mark

It also means that investors who may want to buy blue chips but only have a few thousand dollars to invest don’t have to go through the convoluted process of trading through the odd-lot market.

What’s more, it also means that we don’t have to worry about taking up rights issues if they could result in an odd number of shares that may be difficult to sell later on.

Rigid board lots size, in my opinion impedes investing. It is also highly divisive. It effectively splits the stock market into those who have plenty of money to invest and those who don’t. By imposing a minimum order requirement of 1,000 shares, it effectively restricts choice. This is not what investing should be about.

Investing should be about the freedom to build a portfolio of shares that matches the temperament and objectives of an investor. If an investor with cash resources of, say, $30,000 wishes to build a balanced portfolio of blue-chip shares, he or she could be hard pushed to do so when a single counter might be priced at $50 a pop.

The move by the Singapore Exchange to cut the board lot size from 1,000 to 100 should be applauded. Additionally, a further cut to just one share will bring Singapore’s stock market in line with major exchanges such as Sydney and London, where investors can buy a single share if they wish.

The reduction of Singapore’s board lot size reminds me of an amusing quote by former American baseball player Yogi Berra who said: “You better cut my pizza into four because I’m not hungry enough if you cut it into six”.

The reduction of the board lot size will bring some shares within your share-buying budget. However, just because you can buy a share doesn’t always mean that you should. Valuation still matters.

An overvalued share at $20 a pop will still be overvalued even though it will cost $2,000 to buy one lot of !00 shares rather $20,000 to buy a lot of 1,000 shares.

Remember, investing has always been about buying undervalued shares rather than the amount of money you have to spend. Cheap rubbish is still rubbish and overpriced shares will still be overpriced regardless of the board lot size.

To your investing

David Kuo

This article is contributed by The Motley Fool Singapore