Why I didn’t buy more ACB.T
Investing is mental game, constantly toying with your emotions. When I first bought into Aurora (ACB.T) I had about 4400 shares, I continued buying using dollar cost averaging. Eventually I was up to around 12,000 shares. I had never owned that many shares in a company before.
Perception of a large amount of shares
I got to thinking, for every dollar the stock goes up my shares are worth $12,000 more, that sounds pretty awesome. Until you look at the other side of it with a drop of $1 dropping the value by an equal amount.
This perceived large change in value made me pretty nervous about having that many shares in one company.
Dollar Value VS Share Count
The really stupid thing about this was I should have been looking at was how much money I had invested and not the share count. ACB.T was around 2.00 at this time and I had about 15,000 invested which was worth $24,000. While I had about 4,000 shares of WEED.T worth about $28,000.
When I first started investing in weedstocks I really didn’t understand the market cap concept. I thought it was great I had so many shares of Aurora. When in reality I had about 3x as many shares in ACB.T versus WEED.t, but the same amount of capital invested. At the time the market caps of the 2 companies were pretty similar, around 800 million to 1 billion.
If ACB and WEED have equal market caps, the companies are worth the same amount. The price of the shares doesn’t matter that much. If ACB has 3x more shares outstanding, then the price of ACB is 3x “cheaper”. With an equal amount of investment in each company you will get more shares in one but you will own the same percentage.
Example if ACB has 300 million shares outstanding and you can buy 30,000 shares at $2 it would be a 60k investment. You would own .01% of the company.
If WEED.T has 100 million shares outstanding and you can buy 10,000 shares at $6 it would be a 60k investment. You would own .01% of the company.
So in the example above, both companies have a market cap of 600 million. Putting an equal amount of money into each company results in own the same amount of the company.
So in the end it didn’t really matter how many shares I had, it was an equal amount of dollars invested. The market caps may not have been exactly the same at the time, ACB.T has always been lowering than WEED.T. With the market cap being lower, ACB is a cheaper company to invest in, but the amount of shares outstanding makes it look far cheaper than it actually is.
When these 2 stocks start increasing in value, WEED.T will increase in share price 3x as fast as ACB.T due to having the amount of shares outstanding. So ACB would go to $4 and have a market cap of 1.2 billion and WEED.T would go to $12 for a market cap of 1.2 billion. ($2 increase vs a $6 increase)
This comparison is having the market caps equal, of course over time one company will grow faster than the other. The real challenge is knowing which one will grow its market cap the most over the shortest time.
Buying a large amount of shares
I recently purchased 20,000 shares of Matica (MMJ) at $.16. Am I worried about the stock going up and down causing a $20,000 change in value per dollar, not really. They have 228 million shares outstanding so are currently valued at 65 million market cap(currently at .28). This is a pretty reasonable market cap for a pre licensed producer.
The more shares outstanding the less movement required on the share price to change the market cap. For this stock to reach $1.00 the market cap will be 228 million which is where most established producers are that are fully licensed and generating revenue. So buying a penny stock hopping it will increase too a few dollars is highly dependent on how many shares are outstanding.
I’ve learned not to focus on the amount of shares I can buy as the market cap is much more indicative of the company value. As the company increases in value so will the share price.