Toejam said:
Can you explain further what you mean when you stated that PID has a pretty skimpy average share volume so that you "couldn't just plonk the entire amount down all at once without goring" yourself on the share price? Why would there be a problem in putting the entire amount in all at once?
I've sold off a big chunk of our international holdings and now that big chunk has to be invested in another fund. This is lump-sum investing in a stock, not DCA'ing into a mutual fund. I'm concerned that PID doesn't have enough daily trading volume to absorb a lump-sum buy without spiking the price.
Here's an example of what a large trade can do to a fairly liquid stock. A couple days ago Polymedica (PLMD) was trading at about $38 on a share volume of about 250,000 shares/day. Morning trading had already knocked the price down from $39 when someone sold a million shares during the lunch break when trading was light. The price nosedived to under $36 and then bounced back up to $38.50. Somone was so eager to unload 1M shares that they cost themselves at least $1M on a $36M-$38M transaction (let's call that 3%). This lunchtime spike doesn't even show on the daily trading charts until you zoom in on Thursday noon in 5-15-minute increments. Yet this is a stock with a fairly big volume that's followed by a lot of analysts & market-makers, and I didn't notice it until Brewer pointed it out. In a thinly traded stock this is not uncommon and it could be even worse.
For some hypothetical PID numbers, let's say that 100,000 shares change hands every day. (The actual average share volume is about 120K/day but some days have been as little as 45K.) If I buy 1000 shares, I'm 1% of the daily market volume. A mutual fund giant like Fidelity buys & sells enough stock/bond shares every day to comprise about 10% of America's daily market volume, so in PID's tiny little pond I've just become a comparatively big fish. PID has little liquidity and few followers, so it doesn't take much of a cannonball to make a big splash.
If I buy a big chunk of shares at the market price, that demand drives up the price. Imagine if that purchase was 5,000 or even 10,000 shares. I'd have my very own volume spike in PID's daily charts. I'd drive demand all by myself and the price would jump accordingly. So if my 10K share purchase drives the price of PID up by even one cent (from $17/share to $17.01) then I've just cost myself $100. Of course that's a pitiful fraction of the $170K value of the purchase but 3% would have been over $5000. When you consider that Fidelity charges as little as $8 commission per purchase, it can actually save a little to spread that purchase out over five or even 10 smaller transactions to avoid a $100 spike-- let alone five grand.
PID is even less liquid. If that share price bounced a buck (followed by a retracement similar to PLMD) then I've cost myself $10K-- now we're talking real money in some slimy market-maker's manipulative mandibles. Considering PLMD's price behavior, not untypical for this type of volume, I'm reluctant to experiment.
There are other problems to consider, of course. One issue would be how much PID goes up on its own while I'm trickling in the money. It's gone up about 15 cents a share over the last few days, so each day that I didn't buy 1000 shares has cost me $150. Bummer, but it's a lot less than $5-10K. I'm losing a little potential profit every day in order to avoid losing more at once. But my interpretation of the PID charts is that the price is at the high end of its trading band, so I don't feel bad (yet) about trickling in the money while waiting for the share price to retract a little. I think the price will drop a little next week, and I'll be there.
One final point on these nickel-dime considerations. TBGVX's expense ratio is currently 1.39% and PID's ER is 0.5%. Let's call the annual savings 0.8%. For the amount of money we're moving into PID, the amount of expenses we'll avoid in the first year alone is an order of magnitude over the cost of the commissions. If I drive the price up with a huge lump-sum purchase, though, then I wipe out those potential savings while only saving a few $8 commissions.
Finally, these are short-term timing issues driven more by emotion than by logic. As Brewer's pointed out before, it's time in the market that counts-- not timing the market. Although costing myself a year or two of expense-ratio savings is probably not that important over the 25+ years that we'll be holding these shares, it's still emotionally important to me to complete the share purchases in a way that doesn't significantly affect the share price. Call it testosterone poisoning, but I'm not eager to lose money immediately while consoling myself that it's insignificant in the long run.
However the thought of 25 years of reinvesting a 3% dividend in a Roth IRA is pretty yummy. The account will double even if the dollar doesn't drop and the share price doesn't move...
