So I started making a few purchases last week, just trying to get my feet wet. One particular planned long term holding has me thinking/overthinking. This was a $2K transaction netting 27 shares. This holding was one that had been very stable up to this point but dropped roughly 7% in the few days following my purchase.

Now, I had left additional money in the account for what Trey had already mentioned "being ready to pounce". Now, technically I had planned on using this money for other holdings but I went ahead and dropped an additional $2K on the same company(netting 29 more shares). Today, this holding is up nearly 10% from where I bought the 2nd shares.

Since I am just getting started and with minimal funds I'd prefer to diversify over having this much in one holding. I guess I am just looking for some opinions on what to look out for in this situation. I had never planned on selling anything short term like this but I tend to over think things. This wouldn't be a move to make money on the original shares, it would just be to lower my cost on that holding(technically 2 additional shares rather than cost savings) and free up that money to help diversify.

I do this all the time -- and when I can - I sell the most expensive shares and hold the lower cost ones. You have to usually check a box when selling (if you're doing so on line) to sell the shares on a FIFO basis --- First in - First Out... OR depending on how they word their selection process -- they might have a box to just sell the highest cost shares first -- or they might say something else. Be sure you know what you're checking!

So you have $4k in one position that's a solid company that you're wanting to invest in long term and no other positions with other companies, correct? Is this your only retirement account, no company matched 401k or IRA elsewhere?

What I'm getting at is why not just keep it where it is and only add money to other positions? Yes, it's going to be rocky while you build up other positions to help diversify. How long do you think it would take you to get diversified? If we're talking months, I'd say just go with it. If a year or more, I'd say sell you gains and then diversify. If you have other retirement accounts, and this is just the one you want to manage, I'd let it ride.

Please explain what you mean by this Greg. This doesn't make sense to me. Isn't that like saying FIFO of your bank account, as its all just money? Aren't they are just shares no matter what you paid for them?

Doug

Each share you purchase has it's own cost basis which gains are figured off of when it is sold. When you sell a share, you get to choose which one of your total holdings you sell (choosing your cost basis if different). Your brokerage account keeps track of the cost basis of each share for you as well as a total cost basis.

If you have a widely different cost basis in different shares of the same stock, how you make this choice can have a big effect on the capital gain and taxes owed. (or loss if that is the case).

It is an online account so that's good to know.



I have a total of 6 at this time. The plan is to offload the IS300 and add positions. That car will likely be tough to sell so I may be sitting on it for a while.

I don't have a 401K. I would actually like to discuss that with the owner. They offered a profit share a number of years before I started working there but they got burned by the guy managing the account (not a lot of details are discussed but the guy is in jail now)

Just my opinion but unless a 401k through your job has some matching contributions from the company it does nothing for you other than take your money out of your paycheck for you, if you're not disciplined enough to do it on your own. Most have limited and not very good investment choices and you can do much better investing anywhere you choose through a traditional IRA and/or Roth IRA.

Erik is correct. Without a company match a 401k or even a Roth 401k aren't anything special. You can do the same thing for yourself with a Roth IRA. I believe you can also set it up so that it automatically debits your banking account. You should definitely have a Roth IRA if you don't already. You can set up a brokerage account under that account and shield all the earnings from taxes. You're just limited to $5500 a year that you can invest. If you want to put away more, get a regular brokerage account after you've maxed out the Roth.

There are INCOME limitations on who can open a ROTH IRA... I don't know what it is anymore but not everyone can open one.

As of 2016 tax code for Roth IRA

2016
Traditional IRA Contribution Limit if 50 or over $6,500
Roth IRA Income Limits (for single filers) Phase-out starts at $117,000; ineligble at $132,000
Roth IRA Income Limits (for married filers) Phase-out starts at $184,000; ineligble at $194,000

I would verify this with your CPA or tax accountant however....

A great article on what happens to returns if you sit on the sidelines with cash. I was stunned by the reduction in returns if you miss even just the 3 best up days of the year.

http://www.cnbc.com/2016/01/24/went-...oull-make.html

Good call Greg and Mike. I had forgotten about the income limit associated with Roth IRAs.

YES!!! I've called his out several times in the last 500 pages... That if you're out or trying to "time" the market and even miss the one or two big up days --- you might have missed the entire market move for the year. It's why I typically state, that if you're an investor, just put your money in on a regular basis over time - and as time goes by it will take care of you - even if you bought at the very peak. If you're regular - you'll also have bought some shares at lower prices - and in the end, 20 years from now it will look dirt cheap!

GoPro Nose Dive
 

Well I hope someone out there used their GoPro camera to record the nosedive their shares have taken. Back in July of 2014 I bought 10 shares for the hell of it (with money I can afford to lose, not that I wanted to) at $42.90 and just checked to see them at $10.75. :G-Dub:

It's not only about company match, lets not forget that 401k's allow you to reduce your taxable income and have more substantial annual limits.

Of course we'd all like to know that we're going to make so much money off our investments in retirement that we'll pay the tax now and avoid it later, but I'm not confident enough to make that declaration. For me personally, I'll use the same principles of diversification and apply them to my before-tax and after-tax investments.

Go Pro appears to be a one trick pony. I don't know if that's accurate or not, but most of the best performing stocks don't have one customer and are capable of serving the many.They have other products that can smooth out the wrinkles when a competitor takes market share or the market fizzles out. I'm sure there are exceptions, but even Apple has phones, laptops, desktops, ipods, and ipads.

GoPro (GPRO)
 

I think we've all written about the IPO market (gambling) many times here.... these are stocks that are incredibly volatile... and for every one that hits it big time - there's dozens that are complete flops.

We also discussed GoPro (GPRO) and the fact that they only had basically one thing going - a video camera.... And while as car guys - or people that are active - requiring this style of camera... After you have a couple of them... what's the real market? So this "flop" doesn't come as any surprise to me at all. My only surprise in all of this - is that there's not been a competitor ride in that's taken ALL of the market - with an even smaller easier to use version.

I for one just couldn't see the sustainability in GPRO, yes i use and like the product, but just can't see them selling them to "each" person....They may have some hidden markets i cant' see, but im "trying" to buy quality divi's...

I wasn't expecting much from GoPro. When the shares doubled in price I wanted to sell but thought the short-term capitol gains taxes would wipe out any profit. I should've just taken the chance anyway.

I hope that you all have been able to "take in" and comprehend what has been TWO ---- Fundamental changes ---- in McDonalds (MCD) and Chipotle Mexican Grill (CMG). Wow! Who'd have known we'd get such a clean basic lesson played out almost simultaneously!

McDonalds was sliding to nowhere.... a lack of growth in sales... profits declining. They CHANGE the CEO and change a couple of menu items (adding breakfast all day) and BAM! The stock takes off and sales jump etc.

While that didn't seem like a big deal to newbies.... it is! But beware -- a change like that (CEO) doesn't always work out quite so well. My point is more that you need to be aware of changes and give so extra attention to them. They can be very important.


Chipotle has a food safety problem -- I'd call that a very HUGE fundamental change -- and their stock tanked. That would be a pretty obvious "result". Any time you hear a company having a "safety" issue - your antennas better perk right up because that's not going to work out well for your shares!

Now.... we just saw the results reported for CMG. Not good - in fact - I'd say they were horrible.

Here's the SECOND fundamental change we would want to watch for. Can they get the consumer confidence back? Is this a buying opportunity? Can they turn this very damaging problem around and regain the public trust? They MUST regain the trust of the consumer. Period. They can't open a bunch of new stores and have that be good news on their quarterly reports. They have to get the customer back. The fundamental change?? How they go about doing that..... Or do they fail? I can't think of a worse problem to have to deal with.

I can tell you that the Chipotle next to my office has lost 50% of it's business? The line is almost non existent these days.

The old saying about a reputation taking years to build and can be destroyed in seconds -- or something along those lines...

Sad really --- because they have really good food IMHO.

I have been watching VW (vlkay) very closely since the fiasco last year. It continues to go down and down and down. It seems that every time a meeting is held or an announcement is made from the company it goes down even more. There are some meetings scheduled in February to discuss their future so I am expecting more of the same. This is a company I have confidence will pull through whatever lies ahead so I would consider them a long term buy. However, because I am so new to this I am still uneasy playing this game. I'd rather stick with the tried & true(boring) until my comfort level is higher.


A little off-topic but did everyone catch Greg's pic in the new Goodguys Gazette?

The old saying about NOT trying to catch a falling knife.... usually holds very true in "stock picking". But at some point - there is some "justification" to be used to step in front of the train and make a purchase. I prefer to wait until they stop falling and start coming back up. I've found I don't need to hit the very bottom -- or try to gamble and get way in front of any bad news yet to be announced.

I do agree that they WILL put this behind them and turn the corner = and it would be a good long term holding. We just need to let the dust settle.

Chipotle reminds me of the Target security breach fiasco a year or two ago. Soon, the masses will forget that 100 people got sick out of 5,000,000 meals. I'll utilize the Greg Weld philosophy. Once I see the lines start to get longer again, I'll consider a purchase. It's a good meal for 8 bucks and fast. I like their business model. A simple menu with some health points. Their sites are modern and nice.

By the way, I sold out of Target in my immaturity. I haven't researched it, but I'd bet the farm that was a mistake. :thankyou:

I find it strange that this outbreak at Chipotle only affected them and their restaurants source food locally and they had multiple outbreaks in different parts of the country. I don't know but I can't imagine those food suppliers ONLY supply to Chipotle. One of the strains they found is one not commonly found in food. They've looked everywhere for the source and haven't found it. They've also had norovirus and salmonella incidents and the US attorney's office and the FDA have subpoenaed Chiopotle in a criminal investigation of the norovirus outbreak. There aren't any details released but they typically only investigate these things when they suspect suspicious activity apparently.

I'm a fan of Chipotle and I still eat there regularly but this one totally smells like foul play to me.

Think I'm gonna buy some Google and Facebook tonight.

Good observation Erik --- but here's the take-away. This kind of stuff is why you DON'T try to catch a falling knife. We really don't know if there's more to this story! Perhaps nothing - and perhaps there's something yet to be determined.... thus, too early to be a buyer at this point.

I agree Greg, and as I go there all the time, I will know when the long lines return (if they do) indicating customer confidence is back like Todd said. That will happen before the stock market figures it out I'm sure.

EXACTLY!!


A perfect example of investing in "what you know". You'll be able to either see the decline or the consumer coming back. You'll also be a judge yourself... just by noting whether or not you still go - how often - and whether or not the food is better or worse etc.

A little "note" on this while I was in Austin this last weekend. I've been wanting to visit a Shake Shack (SHAK) since they went public. The stock has been a typical IPO over hyped flop.... running way up - and then when the hype has settled down - it's come back down to earth and may still be overpriced on a P/E basis etc (it has no E so can't have a P/E).... The burger was very good - and the place was packed at 2PM and still packed at 5PM.... so that location was humming along very nicely. BUT --- Here's the deal that I was reminded of while my group ate. There is a privately owned joint a block away - called Hopdoddy - the consensus of the group (all 20 somethings) was that Hopdoddy had a far better menu and food. So this "market" has about zero barrier to entry... and that market is rather fickle and can shift (in these small - relative to something like McDonalds etc) quickly. But the winner is often the guy that can grow and manage that growth vs the actual "winner" of the food war. So who knows.

Greg, question.

How do people make money on "shorting a stock"?

I'm of the mindset that if you buy something for $6 and sell it for $7, you made a buck.

Can you explain in laymens terms (read, i have a learning problem) on how these "investors" do it? I'm NOT planning on doing this btw, but curious for educations purposes. We may have talked about this a while back, but i didn't pick it up intectually....thanx dude....


Regarding the restaurant's, I was taught by my brother "always go to the busiest place when in a town you do not know".....makes sense now.

Mike,

Shorting a stock means you sell it when you don't own it, then buy it back later to 'cover' the position (replace the stock). When you do the initial sale, the money is placed into your account. When you buy it back later, you pay whatever the market price is for the stock at that point.

Short sellers are expecting a stock to move downward. They expect the sale to be at a higher price than the purchase. Since you are paid upfront for the sale, you use those funds to complete the purchase. If the price is lower, you get to keep the difference, and that's the profit. If the price is higher, you pay all that you initially received and more, and that become a loss. You pay your normal commissions on both transactions as well, which factor into your profit.

On the initial sell, you are borrowing the stock to sell from someone else. The brokerage takes care of this behind the scenes. It's not always possible to do this, as it's not always possible for the brokerage to perform the 'borrow'. I don't know the details about how this works behind the scenes...

I've also read that you might have to pay a 'fee' for the borrow, but in practice I have not run into that myself (I generally don't short though, instead using options for any position in that direction).

That answer your question? (definitely not a 101 topic. ;) )

It's worth noting that with a short, you technically have unlimited downside risk, since there's no limit to how high a stock price can go. Conversely, when you buy a stock, your downside is limited to 100% or a price that drops to $0. Clearly not for the faint of heart.

Good response to your question Mike from Bryan.


I NEVER go short - even though I'm absolutely convinced that either the actual stock - or that "industry" is going down. I simply can't get that deeply involved in their financials - or follow something that closely. That takes WORK - and is best left to very savvy investors. The minute you short something -- some company in their industry will announce a take over at a premium price -- and you get KILLED. This is what I mean by - I can't follow something that closely.

I have, however, sold "short against the box" --- meaning --- The shares I intend to "short" are already held in my account.

So -- I might have 1000 shares of something -- I feel -- or have read news -- that I don't like that might cause the shares to go down (I THINK) -- so maybe I sell 500 shares (or even the full 1000) "short". Collect the cash.... NOW - I at least know my cost for the replacement shares when I "cover" the short.

All in all -- this is not a strategy to play unless you're a real gambler. I don't understand why anyone (except a pro) is going to want to bet against a company doing well.... by shorting them hoping they'd do poorly. I prefer just to buy shares in a company I think is going to do well long term and pays me a dividend.

We usually look for police cruisers and pick up trucks. Last year we were driving through Carlsbad, NM and it was a little early, like 5:20pm. Places were mostly empty. Wife insisted on Chili's. Not that big a fan of Chili's, but you know what you are going to get at least. I swear someone must have unloaded a bus because it was totally packed and full of people who were obviously from elsewhere. Every time I go into a Chili's that was that busy the service has been painfully slow, especially in small cities for some reason. I have 3 young children who are hungry, not doing that to myself. So I turned around, loaded the kids and drove down the street. Gambled on a local joint that had one pick up truck in front. "Danny's Place, Real Pit BBQ". It was awesome. By the time our food arrived the place was full and people were waiting to be seated. Sometimes gut feel and lucky works out.

Totally correct!!! Can you imagine having a short "on" say NetFLix (NFLX) and watching it run after they announced a 7 for 1 split!!

Or shorting Amazon because you're sure Xmas is going to suck....


Shorts usually work best in "hindsight".... after you've watched the stock you knew was going to implode actually does what you thought. Handy - and fun even - as long as you're not actually placing that bet. Reminds me of the 'Bama game --- I was $100 on 'Bama by 7..... yeah had it beat with a winner coming down the last 2 minutes - and BAM! Clemson scores and kills my spread! So while I won the game - I lost the bet!! ($100 plus the 10% vig). So you could be right - and still lose! Yeah the company you shorted sucked - but then somebody else steps in and buys the company because they think they can turn it around.... or the big contract they lost - suddenly gets awarded - or the product (usually drugs) doesn't work for what it was designed for - but works great for something else.... the possibilities are as endless as your losses can be! LOL

Don't forget about the story of the guy who shorted a stock late in the day. Overnight the stock went gangbusters and he owed well over $100k when the markets opened the next day. He didn't have the $100k.

Shorting stock, or gambling in Vegas. I'll pick Vegas...

Thanx Bryan, it makes more sense. I dont have a total grasp on it logistically speaking. I guess it would be like if your a broker for a house, agreed for a price and you sell it for less, make the difference between the two?

You are selling stocks you don't technically own ( stocks on loan) and hoping you can buy them cheaper at a future date to pay back the "loan".

To use your analogy.... it would be like selling a house you borrowed from your neighbor, for $500,000 and hoping the buyer defaults and you could buy the house back for $400,000 and return it to the neighbor you borrowed it from.

If, in the meantime, the real estate market gets 'hot' - and the house value shoots up to $650,000 and the neighbor is demanding the return of his house - and you have no other option but to go to the buyer and lay $100 bills on the table until the buyer decides to sell back to you.

Sometimes - when a "short" is "obvious" to many... that trade gets "crowded" (using terms in quotes that you'll hear on TV etc) and everyone decides to cover... the stock can shoot up just because everyone has to buy the shares to cover their short positions.

Basically - it's a very risky trade.