What can you do with $100 in the stock market
posted on: 2019-10-31
Oftentimes I hear about people asking: What can I invest with a small amount like $100? And then there would be people replying with: Hey, leave the money in your pocket, go buy a beer somewhere, or Save your time your money is too small to achieve anything. I was always puzzled about how wildly inaccurate and insincere those comments are, and hoped those money don't end up becoming beer money and disappear.
Generally speaking, your money becomes less valuable over time. There is a thing called time value of money, which measures the value of money at different times. And usually, the future value of money when discounted back to the present time would be less. For example, if you invest $100 in the rate of inflation in 1910 you would have approximately $2500 in the year 2010. That also means if you are hiding the money under your pillow over the past 100 years your purchasing power would decrease around 25 times to a measly $4.
There are many other factors that is causing your purchasing power to drop. But roughly speaking, if you want to get the same goods or services you would be paying 25 times more in 2010 than you would in 1910. (Bear in mind this is an approximation because you can get a plane ticket or a phone call much cheaper nowadays, but you are not getting the same quality of service). For a non-existent, simple publicly-traded company this means you have to pay 25 times more to hire an employee, 25 times more to purchase materials, and so is the 25 times increase in expenses and profits. And if you also assume the P/E ratio remains constant for this company then the stock price would increase about 25 times.
Ok, this company doesn't exist. Some of them disappear, while some others do well. But in general when money becomes smaller, the price has to go up.
Now let's look at some extreme cases in the stock market. You can use the calculator above to research companies that you like, but let's look at some big names that you might be familiar with.
If you had $100 of Apple Inc. on 2000-03-10 (Dot.com bubble peak) you would have $5555.75 today.
If you had $100 of Apple Inc. on 2002-09-24 (Dot.com bubble bottom) you would have $23858.21 today.
If you had $100 of Apple Inc. on 2007-10-09 (2007 Financial crisis peak) you would have $1040.28 today.
If you had $100 of Apple Inc. on 2009-03-09 (2009 Financial crisis bottom) you would have $2101.64 today.
If you had $100 in any of these you would have $0 by now. This is sad.
Let's say you are such a terrible investor and invested $100 each in all 5 companies at the peak of the dot.com bubble, you would have $5555.75 today even if you have 4 companies disappeared in your portfolio. Or maybe you're a late bloomer that you invested $100 in all those companies at the peak of 2007 and have all other 4 companies go to 0 you would still have $1040 in the portfolio.
But is it possible to find Apple in 2000 or 2008? For a lot of people, the answer is yes. iPhone was released in 2007 and that is before the financial crisis. If you have talked to people then you might have a chance to find this company and invest in them during the financial crisis.
Peter Lynch once wrote in his book he found some of his best ideas when he was out with his family, traveling or talking with friends and associates. One day his wife told him how much she liked L'eggs pantyhose, a new product she'd just tried out. After looking into the company's prospects and liking what he saw, Lynch bought the Hanes Company, maker of L'eggs, and his fund investors realized a 30-fold appreciation in Hanes stock. A lot of times investing boils down to whether or not you talk to people and find something that people like. Sometimes investing might even be intuitive.
So what can you do with $100 in the stock market? The answer is probably a lot. You might be investing in something that gives you more financial flexibility later on. Or you might be really unfortunate and end up investing in something really bad but at least the worst case scenario is you don't get beers.
Have some comments? What do you think about this company?