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Answer:
Dear
BuyandHolder,
It's
very likely that some of your portfolio consists of
odd lots, but it's not a negative.
The
definition
An
odd lot refers to less than 100 shares of a given
stock. If you have 1 share of a stock, 10 shares,
or 60 shares -- you have an odd lot. If you own 170
shares, then you have a round lot of 100 shares plus
an odd lots of 70 shares.
Because
you can add to your BUYandHOLD account by dollar amounts,
you can indeed wind up purchasing less than 100 shares
of a given stock.
An
odd lot is also called a broken lot or uneven
lot. It's the exact opposite of a round lot.
Stock
splits & odd lots
Another
way to turn up with odd lots is with a stock split.
If you own 100 shares and there is a 3 for 2 split,
you will wind up with 50 shares in your account when
the stock splits.
$TIP:
For more on stock splits, read a previous column
on the topic by clicking HERE.
The
cost
Some
brokerage firms, but not BUYandHOLD, charge their
clients higher commissions for odd lots, typically
1/8 of a point per share. This is referred to as the
differential.
That's
because there is more work involved in processing
an odd lot -- especially when it comes to getting
a stock certificate. The brokerage firm has to take
a 100-share certificate to the transfer agent and
have the certificate broken into pieces so the odd
lot amount can be delivered to your account.
But
charging a differential for odd lots is becoming less
and less common because most stocks are now owned
electronically rather than by certificates. In other
words, the stocks are held in the broker's name (officially
known as in street name) and individuals rarely
get certificates any more. Bottom line: No additional
paperwork to fill odd lot orders.
The
odd lot theory
You
might be interested to know that there's also a technical
analysis theory known as the odd lot theory. It's
based on the assumption that the small individual
investor tends to be wrong -- or that that odd lots
are traded primarily by small investors who are on
average, less experienced than large, institutional
investors. Therefore, if odd lots sales are up, then
small investors are selling and so it's a good time
to buy.
This
approach assumes that small investors have a low tolerance
for risk and so they do not hold a stock for the long
term. I personally do not believe in the odd lot theory,
especially for BuyandHolders. It's obvious by the
name alone, that Buy and Hold clients are in the market
for the long haul. In addition, there's little historical
data to support this theory.
Good
luck!
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