Investing 102

[GregWeld]

So just FYI --- While I hold a sizable stake in McDonalds -- I added a 1000 shares today on the sell off.... and here's why --- and this is the "investing 102" part not about "ME" -- I like a company that is growing top line and same store sales #'s. While it's only down a couple bucks that's a "let me in" opening if you want to add to a position. Doesn't mean I'm right... but I like the shares long term so I don't mind if it's down temporarily.

This is the "averaging" or "scaling" in... my costs are far lower than where it's trading - so even if I pay up here - it barely nudges my total holdings cost basis.

So lets say you held 50 shares at $80 and you bought 10 more at $100 -- your overall cost is $83 a share...

Many people get caught up in EACH stock having to be a performer -- and like the above example -- I want my OVERALL account to be positive - there's always going to be some outsized gains - some mediocre - and some losers but overall I want to be up or even (in a bad market)...

[CRCRFT78]

Forgive me for asking but how do you figure out the cost in your McDonalds example when you said those extra shares actually cost you $83 instead of $100.

[pw2006]

Originally Posted by CRCRFT78

Forgive me for asking but how do you figure out the cost in your McDonalds example when you said those extra shares actually cost you $83 instead of $100.

$80x50 shares=$4000
$100x10 shares= $1000
$5000 total investment / 60 shares = $83.33 average purchase price per share

[CRCRFT78]

Got it. I knew it would be a simple formula for some reason I just kept making it more complicated than necessary over thinking it.

[sik68]

I had really taken note of what you said, Greg about mutual funds and why you don't see them as a good choice over simply choosing the "best of breed" stocks.

So I looked at the mutual funds that I was in...funds that Schwab recommended as "diversified portfolio quick picks" a couple years ago. I had 8 funds, and when I plot them on a 10 year comparison vs. the Dow, you can see that all of them were within a few % of each other of the long term. Some are slightly up, some are slightly down, but I can see that with these large funds, you can never break away from what the Dow is doing for you...not putting my money to work the way it could be.

I'm starting to be a believer that mutual funds can really hold back growth potential. Like Greg is saying, funds have the best of breed stocks in them...and that's what you see sprinkled among the Top 10 or 25 holdings; but those funds are bloated with hundreds of other companies that drag it down, averaging out the gains.

I used to think of investing mutual funds as less risky than buying individual stocks....now I think a good argument can be made for greater risk in mutual funds over simply going with fifteen or twenty of these "steady eddies." It is pretty easy to see that the "best of breed" stocks will beat the Dow over the long haul.

To walk the walk, I sold much of the diversity of my funds and consolidated down to a couple of funds that I liked. And I used the money to double down on my "best of breed" stocks; the Lateral-G mutual fund, if you will. (As a thank you, the G can stand for Greg ).

Throwing this out there, I have some money into clothing retail: Guess (GES) and Ralph Lauren (RL). RL has done a lot better then GES for me so far, but I am seeing that with the momentum behind the rising standards of living in China and India, that they will be commanding more luxury goods, among these are clothes. I have some into Starbucks (SBUX) for the same reason.

[bdahlg68]

Originally Posted by pw2006

RL looks great! You may want to take a look at a company called Buckle (BKE) instead of GES. BKE offers a lower yield but much better total returns.

BKE- 1/3/5 Total Return = 22%/165%/165%
Div yield = 1.9%

GES- 1/3/5 Total Return = <29.6%>/116%/<9.7%>
Div yield = 2.7%

Buckle has been around for many years. They own clothing brands such as: 7 for all mankind, Affliction, Alpinestar, Billabong, BCBG, Diesel, Dr. Martens, Fossil, Fox, Hurley, K-Swiss, Kenneth Cole, Lacoste, Lucky Brands, O'Neil, Puma, Quicksilver, True Religion and Volcom just to name a few.

As far as I know, BKE doesn't own those companies - they just retail those brands along side their own goods....

[pw2006]

Originally Posted by bdahlg68

As far as I know, BKE doesn't own those companies - they just retail those brands along side their own goods....

You are correct, I should have stated they retail/market those brands.

[GregWeld]

Originally Posted by CRCRFT78

Got it. I knew it would be a simple formula for some reason I just kept making it more complicated than necessary over thinking it.

In that case Jose -- you're trying to be a broker or analyst.... they always try to make it complicated. Keeping you confused or in the dark is how they make YOU think THEY are smart or something. They're not.



Whether or not you average "IN" or "OUT" it always usually (note that caveat) pays to do the math to see what you're really doing and how it will affect your portfolio. Most of the time you'll see that buying in as a stock RISES - doesn't really raise your cost basis all that much.

Schwab allow you to check a choice when you SELL -- You must check these options BEFORE you sell -- and I went over this before in the thread -- that allows you to SELL the most expensive shares FIRST -- or in other words the best tax managed sales - in order to keep your capital gains as low as possible. Many people don't know this little fact....

So let's say you did that McDonalds trade -- you have the 60 total shares - but the last 10 cost you $100 a share -- and now they're trading at $120.... and you want to balance your account out.... you want to sell the $100 shares FIRST and only have a $20 per share taxable event --- you don't want to sell the $80 shares and have a $40 per share taxable event. Particularly if you plan to hold "some" shares in the name.

We're not trading -- and I'm assuming that magic ONE YEAR AND A DAY holding period for Long Term Capital Gains... but it pays to manage your GAINS and reduce your taxes. What the heck -- why pay 15% on 40 when you can pay 15% on 20!

We are - after all -- TRYING to manage our money!! Right?

[sik68]

That's a very good tip, pw. Thanks! Impressive that BKE is all of those names. I don't wear any of those brands, but if you go to the clubs in S.F. it looks like a BKE convention.