My purchases are always long term. While I was happy I got to add to my positions at a relative discount compared to the prices they had been, I know in another 5 years it won't matter. I just get a kick out of picking up stocks on a down day versus it going down the day after I purchase. The later happens more than the former so I celebrate all little victories. Woot! :D

Great post Trey! Because that's the message that is "correct". It DOES feel better to get a bit of a deal... and investing is VERY emotional. You need "confirmation" that what you're doing is right - not wrong. I get that it's not about the few bucks saved... Longer term - you're absolutely right - it won't matter one bit.

What I am also trying to convey though --- is that it doesn't always work this way -- or snap quite so dramatically. It's wonderful when it does... but get your heads wrapped around that we WILL -- WITH CERTAINTY -- make these buys one day, and then just bleed for a long time. What I've always tried to get everyone to get ready for is when your buys/investments/markets DON'T work the way we've become quite used to. This is why I say to use this period to learn -- to remember the basics - like reminding yourself with the charts that HISTORICALLY we're more about lower on the left and higher on the right... and to remember the euphoria you feel when the market is with you... and that it WILL be like that again - and that you're still earning money on your money with the dividends etc.

Time is totally relevant! I like to look at my stocks more like living in my house... It doesn't have much value while I'm living there other than to keep me dry and warm (the dividends). The value only becomes important when I want to sell it.

Anyone buying oil stocks?

I would but they are in my Roth and it's maxed out for the year already. It's not going to turn around quickly. It may get uglier yet, too. Greg had some thoughts on oil stocks on the previous page.

Here John --- "Somebody" is buying oil.... LOL


http://www.reuters.com/article/2015/...0QY0L120150829

An interesting view on the "market" in SHANGHAI...... That market was up 100% between last November and last month (JULY)... and everyone is freaking out because it's now DOWN 36%. If you were an investor last October or November or December (you know - as it was rising). You're still way ahead.

This IS what happens when a market runs too far - too quickly. Up 100% in a few months is not normal in anything - anywhere. The fact that some air is coming out is a total "well duh".

You can't compare the US markets with that kind of a run. Our market is based - key word here - based - on EARNINGS. All the lumps and bumps along the way are reactionary moves more based on emotion vs fact. Look at YOUR holdings and make sure their earnings are sound and their revenues are going the right way. That's why you want to own the very best companies.

Here's some other food for thought this morning.


If I had not invested in a business in 1975.... or ever since then - bought stocks - and made apartment building investments - and bought commercial buildings... because I thought at the time that they were too high -- or the world was coming to an end - or that interest rates were going one way or the other... or that my house was going down...

We've had wars - I've seen 15% interest rates - I've seen the collapse of the Savings and Loan industry... the collapse of the stock market TWICE (1999 and 2007) - the collapse of the mortgage industry... a slew of Presidents I didn't like... 9/11... Lived thru the cold war - and seen Russia and China go from being imminent threats to being trading partners.

At any time along the way I could have used all of that for INACTION or reasons to be frozen in my tracks... all nothing but excuses for not investing in anything. 25+ years later all of that seems pretty important... and yet here I am living off all those early investments. Maybe you'll see my point? Ignore all of that short term BS... and keep plugging along saving and investing for your future. It matters little that your last investment is down 20%... Where will it be 15 or 20 years from now? My bet is WAY UP.

Market could go down way more.

The Chicago Cubs no hitter could spell doom for the market.
Following Milt Pappas' September 1972 'no hitter', The Dow dropped over 40%
Carlos Zambrano's 'no hitter' in 2008 came during the Lehman bankruptcy weekend and was followed by a 30% plunge in the S&P in the next three weeks, as well as a 6000-point-plus total collapse in the Dow.

So, when we saw Jake Arrieta's 'no hitter' this weekend, we can only imagine what doom it implies for US stocks.

And if that is not worrying enough, the last time The Cubs won the National League Pennant was in 1945, two cities were destroyed by atom bombs.

LOL just joking around.

Another fun fact. In the Back to the Future movie when Marty goes to 2015 the Cubs won the World series.

That is funny stuff right there

The Transition from Growth P/E to the Value P/E
 

I have nearly all of my individual stocks in large-cap dividend companies with 'low' PE ratios: 10 to 25.

But I'm only 31 and have a long investment career ahead of me. So the devil on one shoulder wants me to be bold, and re-balance into 5-10% into these high-flyer tech companies with marginal profits and a ton of growth already priced in.

However, I just can't seem to convince myself that my money is worth it. Sure, NFLX, AMZN, FB, TSLA are pioneers. But according to their profit/loss sheets, their future potential is already priced in. At some point, won't the value of a company need to be reflected in the share price?

Ben Graham says to be wary of these types of stocks because it is very rare to buy a stock at a XXX PE level, then expect to make money as it descends to a 20x-ish PE level. I am trying to find historical examples of companies that have successfully done this, but am stumped. Thoughts/examples?

:EmoteClueless:

WOW! Really great question(s).


Since this is "Investing 102" --- I've personally attempted to stay away from discussion of the "high fliers" -- as this is NOT where someone that is a "newb/beginner" should be --- UNTIL they've built a decent base of good stuff (that we always talk about).

However... YOUNG people -- and those with a decent "base" of investments (the building blocks or rocks)... should certainly dabble in GROWTH.

Recommending GROWTH stocks is a precarious cliff. As you mentioned - by the time you know about them - or are willing to buy them - they've already probably gone a long ways.... That is NOT to say that they're done growing or that they'll "flop" just because their P/E's might be a bit out of whack NOW. Personally, I own NetFlix (NFLX) and Shake Shack (SHAK) and a couple others of this breed. They flop up and down like fish! Which is why they're not recommended for beginners! Most people couldn't stomach these wild swings - or the sea of red ink than can kill your performance on all the other wonderful names you own.

The trick is to really dig deep in your soul and ask yourself how much volatility can you take.... AND which of these "high fliers" do you see being around and growing LONG TERM -- 10 or more years out. That's what I do. Personally - I'll buy 100 grand of a name... which is small potatoes as an investment for me. You're going to give up the automatic compounding that's built in with reinvesting the dividends on the steady bigger companies. But the growth can be a triple or a 10X over time.

I have funds in venture capital... that is pure gambling and comes with great risk but also huge rewards if you get it right. Talk in that kind of arena runs around 4X "ordinary" to 9X "killing it". You're young and if your job and earnings potential is solid.. I'd say pick out 2 or 3 and go for it. Just KNOW that GAIN comes with PAIN... some folks can stand this short term (or even longer term) pain and understand what, and why, they've invested.

A year or two I'd have bet FaceBook was short lived or faddish and wouldn't be able to grow REVENUES into their valuation. Obviously those that bet otherwise have done very well! Netflix is a 9X since it's IPO.... it only takes ONE of those to make up for a couple of ho hums or a bleeder.

Great post there Greg! Do you ever use the PEG Ratio? I always look at the PEG ratio, it really helps figure out which of these high growers is cheaper than the other ones based on their current P/E Ratio and expected growth rate (which is subjective of course). You just have to watch what growth rate is used. I always compare PEG ratios from the same source when comparing them, i.e. don't use the PEG from Yahoo Finance for NTFLX and compare it to the PEG ratio for FB on Schwab for example. I try to keep any buys below a 2.0 PEG ratio. Here is a good explanation of it:

https://en.wikipedia.org/wiki/PEG_ratio

Erik - I know of the PEG... But when I'm buying this crap I use my gut. Take a NetFlix... I bought when everyone I know is USING it not just when the talking heads are talking about it on TV. I bought Shake Shack because my friends in New York City told me about the lines and the food. I'll be in NYC today and will test this theory myself. I bought Apple years ago after seeing the crowds in their stores at the mall. Went home and bought some.

Another rule or metric you can use to help compare stocks is the Chowder rule. You'll have to search seeking alpha to find the information. It's fairly simple though. I'll look into occasionally just to give me a proper comparison between stocks I own or may be interested in.

I'm sure there are lots of different methods and ways to compare stocks. You don't have to get ridiculous about it. Just pick one or two that are easy and align with your goals or philosophy and go for it.

I think I've said this before --- and I think everyone should have and know how to use various "metrics" for helping to make a judgement call. The only thing I would ADD to this is --- don't let metrics over rule your head/gut. When you're buying risky assets... ONLY YOU can live with the result... and if you let metrics talk you into something you really didn't want in the first place... then when it goes south - you'll tend to cut bait -- and kick yourself while you watch "the one" your really wanted to buy - go ballistic.

Growth stocks don't trade well on "metrics" - they trade on momentum... they trade on fear (fear of missing out and fear of being in front of a train)... they trade on hype... they trade up if the talking heads like 'em - and they trade down if the talking heads don't.

Personally --- I like it when people are buying or talking about buying or using the stuff they produce... and sometimes you miss the first legs up because I want to actually witness what's taking place in the real world. I want to see a two block long line out the door (Chipotle and Apple)... I want to see an actual consumer shift (NetFlix). I don't need to be the first guy in and GUESS with my money. GoPro is selling like hot cakes -- has the lions share of that market... buy after the HYPE left... it's done nothing but drip red ink after it's quick rise. Maybe the market is smaller than the P/E can achieve IDK. Tesla -- they're killing it... the car(s) are fantastic.. it trades at a ridiculous P/E... but all my friends seem to want one. To me - that's a good thing (I don't own it). They have a very expensive build out to be a real mass produced manufacturer and I would expect a ton of hiccups.... FaceBook seems to have real lasting traction. I don't use it - so am not buying it - why? Because I won't know when or if it's going to fade into the sunset.... But I think it's a real company and "everyone" is using it. So I miss out... I'll live just fine. I can't own them all and don't want to.

These are all risks -- take them at your own speed.... be sure you want to live with them while they suck.. because usually this stuff drags you down - and then just about the time you're ready to bail and take the loss... they jump 10 points. Or.... they just drip and ooze and cause your stomach to burn. LOL
Sometimes it's just fun to see if you're right. Just don't be upset when the market hands you your ass, it will NOT be on a silver platter. But man do you get bragging rights when you kill it with one or two.

Well said Greg, I like the feeling I get when I can physically see what's happening. I often wonder what would have happened if I just put a little money into each new thing when I noticed a trend developing, i.e. people buying personal computers, EVERYONE getting a cell phone or listening to music that WASN'T on a CD, hell even the company that made those Baby On Board window hangers probably killed it for a while LOL.

Amazon is what's blowing me away lately, I like never buy anything at the store, except groceries and maybe clothes/shoes that I want to try on first. They sell EVERYTHING! I just ordered a bunch of parts for my boat and these flossing things for kids teeth, on the same order, had it in 2 days, free shipping as a Prime member! Sometimes I even get stuff the same day since they put a fulfillment center in here.

Thanks for the feedback fellas, as well as the metrics you use. Maybe I'm not a 'GROWTH' guy; I'm okay with that :)

I can only wish that I'd have bought into this retail behemoth! Wow -- anyone that's interested should check out their chart (AMZN) - UP 70% year to date - UP 60% for 1 year - UP 280% 5 year - UP 1128% in 10 years...

I just wish it paid a dividend... because for my own personal investing that's a critical piece of the puzzle particularly given their share price.

Hey gentlemen, I received my 1st dividend from Shell today, which was nice to see, but I'm a little confused. I bought RDS.B, and when I looked today I now own a few shares of RDS.A. I'm just curious if anyone knows why that is or what effect it might have, if any. Thanks in advance.

Good question --- I couldn't find an answer. A and B both pay the exact same dividend (.94 a quarter)... and the two shares mirror each other. Sometimes A shares are voting and B shares are Non Voting.... but I wasn't going to spend the time to research it.

Thanks for looking Greg. I believe that the A shares pay a 15% tax to the Netherlands where the B shares don't, which is why I chose B from the start. Due to my lack of experience I didn't even consider that they might pay in a different share than what the buyer owned.
I was hoping that someone that owned the stock might know if there's a way to correct that or if I end up paying tax to two countries, which would make me far less happy with my selection. Part of the learning curve I guess.

I did find this little "nugget" in an article just published discussing RDS's ability to continue to pay it's dividend!!



Market is concerned that higher dividend yield at the expense of low share prices will mean that the dividend is not sustainable and company may cut its dividend payment in the future. However, Shell has not cut its dividends over the past 70 years. Even at oil below $10 per barrel, it maintained its dividend payments and has always given priority to its shareholders.

The Anglo-Dutch company is in a good position to finance its future projects while satisfying its investors. At the end of second quarter 2015, Shell’s gearing ratio was 12.7%, much better than other oil giants. Although the completion of the Shell-BG would require the oil company to raise its debt financing, it seems that the company would still be in a strong position to finance its dividends.

Thanks again. I had not seen that article and it definitely put a smile on my face.

In this "crappy" market -- which I have long warned all about WILL happen during your investing horizons.... and I've reminded many times to remember how easy it was to look "brilliant" during an up market. I wanted to just check the pulse on some names we've talked about. Remember that I'm just using these as examples and nothing more.


I pulled up a chart of the ONE YEAR price performance of Altria (MO) - Alibaba (BABA) - GoPro (GPRO) and AT&T (T) and Philip Morris (PM)... just to plot them in my mind. Remember that PM, T, and MO pay dividends - which is the MAIN REASON to own them long term... because they keep paying while the share price is poop....


MO - is UP 20.5%

PM - is DOWN 3.8%

T - is DOWN 8.6%

BABA - is DOWN 30.3%

GPRO - is DOWN 55%

So.... if you owned the three on the top of the list - your account would be positive overall... and you'd be collecting 5% (just rounding off here) dividend... If you owned the last two -- OUCH... and you get nothing while you're waiting for them to come back to even.


Staying in the game in the down market periods is about 99% of the battle... getting PAID while you play the game is even better. Yeah - you're buddy at the office was making a killing the first few weeks or months on his IPO buys... but I'll bet he hasn't mentioned them for awhile... LOL

I'm swimming in a sea of red personally. It's a little uncomfortable right now honestly. I'm glad I'm in this for the long haul though. If I had to make money on trading, I'd be so screwed. I can see why traders might have high stress levels.

Relax......the tide goes in and out, some storms are bigger than others, and major Tsunamis are infrequent.

I hoping there's going to be a reason to go on a little 'average down' shopping spree soon.... :)

Volkswagen Debacle
 

So I have been trying to catch back up with this thread (on page 461) after not reading it for awhile and wanted to skip ahead and get some of your opinions on the Volkswagen debacle. I haven't had a chance to dig deep into whats going on but I did look up the stock to sort of get an idea of whats going on with it. Volkswagen AG (ADR) OTCMKTS:VLKAY the share price is at $27.10, P/E 5.64 and a Div/Yield 1.09/4.01. Now my thinking is that it has the ability to recover and have some decent growth along with the dividend payment over time and be a winner. What could I be missing or not thinking about as an investment consideration?

P.S. I hope I have the right symbol. This was just a spur of the moment look up to see what the stock was doing (besides falling).

I bet Greg will say not to catch the falling knife. It's awful early in the cycle.

I started this deal two years ago and I'm still very happy I did. I have 8.5% more dinero than I would if I left it in the bank before dividends. I got lucky with some good companies that are doing well.

I recently listened to a cd that claimed that 97% of mutual funds are outperformed by the S & P 500. Mutual funds are glorified savings accounts. I see the value of a Roth IRA or a match 401k, but mutual funds are to safe to hit a home run with.

Volkswagon (VLKAY) is much more than just Volkswagen... it's Porsche - it's Bentley - Audi - Lamborghini - Bugatti - Ducati.

The 4% dividend rate is a direct result of the falling share price... My bet is that after a few heads roll -- and some fines are paid... and some fixes are done... This will have been a very good time to buy a good company. In the meantime you might feel like a dart board in a bar... but when the dust settles and things quiet down... the share price should rebound.

I agree with Todd on this one, falling knife analogy and all. I personally like the idea of trying to buy low during this scandal, but it's probably too early given the size of this mess. If you are going to get in on this, you're going to have to make monitoring this situation your new hobby and even then it's still a gamble.

Now you know why I HATE Mutual Funds.... I'd only ever invest in them if they are the only thing you can get in your company matched retirement program.

Yes - Todd - It might be a bit early for Volkswagon.... but I don't think it's a falling knife. My guess is - most of the damage to the share price is probably done. It's a good company overall... and NOW has a decent dividend payout. Not great - but the 4% and the possible recovery upside is a decent "bet".

It's only one metric, but the P/E is looking pretty good relative to peers...

Couple of days ago I did a little 18 month portfolio performance comparison, mine against my business partner's which is managed by a big high faluting wealth management planner.

After you take out the 1% management fee he pays, my portfolio beat his by a couple of tenths of a point...and I'm still less than 50% invested, the rest in money market cash. :D

You should have seen the look on his face when I shared. lol...

And that doesn't take into consideration the income tax consequences of the odd trade here and there the wealth planner did (probably to make it appear as if he knows what he is doing). And oh yeah, the fees...added up to over $45,000...so while the advisor made $45,000 managing his money, he was basically even over the last 18 months.

Sad isn't it?!?!?!


The whole reason behind this thread is to keep the investing SIMPLE -- Easy to learn and understand - and to show that you can EARN money on your money without having to micromanage, or make a bunch of trades. It's just simple investing - more like buying rental real estate. Sure there are the occasional hiccups and worries... just like when the renter moves in the middle of the night. But overall - nobody needs a professional.

I have an entire team just at Wells Fargo... We have the big table meetings on occasion - and go to lunch - and play golf etc. I can tell you without hesitation they don't know one single thing more than I do. Ditto on the VC (Venture Capital) money... which is nothing more than a group of people that have too much money... we pool some cash and choose some investment opportunities. It's a complete crap shoot. Luckily - it only requires one hit to cover up the 9 bottomless pits... The VC at least puts people inside the investments in an effort to help the companies - and also to use connections - and create synergies if possible, and to find the right people when needed.

I ASSume you're referring to Volkswagon (VLKAY).


Investors will look at the larger picture... and decide whether or not the company as a whole - pimples and all - will be able to recover or not. The issue to me would be -- buying too early and suffering for awhile... while collecting 4%... or waiting for the turn up (if) and perhaps missing it altogether. Yesterday the stock was up $1+..... and that was UP 6.5%

I like to look at the percentages rather than the actual dollar amount.

I put the theories learned here to another test earlier this week. The wife and I were offered the opportunity to "invest" in a local wine club that is opening a new location. We know the owner, have been members in his other wine clubs in the past, and were invited to a dinner where the new opportunity was floated.

Basically the investment was setup as a no recourse loan, 10% interest paid on the loan, and wine club benefits such as purchases at 10% above cost during the life of the loan.

That is all fine and dandy, but being no recourse I looked hard at the chances the loan will actually be repaid and I jumped back to Greg's rule about how I feel about the actual business. We dropped our membership in his other "club" because the personal feel of the establishment had gone away, a couple of the partners had a falling out and just an overall feeling of not being wanted when visiting the establishment.

If I stopped paying my membership fee in his other club because I didn't like the direction it was heading...why would I loan him a large sum of money to start the same thing only different in another spot? :D

Thanks Greg!!

Because HE needs YOUR money! :) :thumbsup:

Good call!!


It's so simple. LOL

Frankly --- these down days - weeks, months, or even a year or two... they're good things. We all can hate them. But in the longer run - they'll teach you a lot about who you are as an investor. Patience... buying low instead of when the market is high... Holding rather than capitulating the week before they start the next leg up. Collecting dividends, and having them reinvested which will buy more shares at lower prices... AND when the market turns around, which it WILL... you'll be right back to thinking how smart you were!


Kind of like that old sports intro they used to run --- "the thrill of victory and the agony of defeat".


The key is to learn. Watch and see which stocks suffered the most that you were certain were never going down... and what held it's own... and the reason behind diversity. And more importantly what TIME does for you. Pick a couple of names out that you don't currently own - write down where you think they're headed - and why - and then see if you're right about your 'hunch'. Make a note of when you'd buy them.

We've just talked about Volkswagon -- what's your hunch? It's the perfect name right now to see if you would be right or wrong. You don't have to buy it - just learn from it and see if you can pick the nuggets out of the news - and which way and how many times you'd be a "flopper" on it. LOL

Here's my $0.02 on VLKAY, fwiw.

So far, it has 'only' crashed ~50% since the news was released. The timeline on this recovery is likely very long...it certainly won't be a bounce. So the first opportunity cost question: is there another company to invest in, without the baggage, that could outpace VLKAY?

I'm sure the retrofit of the 09-14 cars will be relatively economical, and the fines will be manageable... I would still be a buyer of their stock if those are the only headwinds they face. BUT the worst thing they did for their business was scare finicky customers. I think their near term sales will be in the toilet (fear) and long term sales will suffer (conquest sales by other brands). The PE will get back to normal... but it will be due to the E.

That says, if it goes substantially lower (another 20%?), I'd think I'd be a buyer.