Investing 102

[GregWeld]

Originally Posted by lmnop

Your right I am a slacker and my employes are following my lead. I am going to take charge of those lazy b*******. I did the assigned homework. And I wish some had explained to me how crappy mutual funds are before I bought them. But better late than never. I am going to do some research and pick some stocks. I was thinking I would divided the 21k into 4 or 8 so either $5250 or $2625 per company. How would you divide the money? The dream is still alive.
Also I took the "slacker" comment as it was intended, I enjoy the casual feel to this thread I feel like I am hanging out with buddies in the shop.
Thanks Greg!

Good to hear Ray!

Personally -- I'd divide the 21K into 8 to 10 different stocks... and if you want help picking -- then post what you're thinking up here and we'll roll 'em around. With this amount you can get some diversity with sectors and have just a bit of higher risk in order to boost your overall return... balancing out some of the safer lower dividend payers.... but with 20K invested - you should be able to MAKE over $1000 per year... and reinvested -- in 5 years you're going to have capital growth AND more shares paying more dividends and you'll be making the snowball into a snowman!

IF you want to, that is.

[lmnop]

Originally Posted by GregWeld

Good to hear Ray!

Personally -- I'd divide the 21K into 8 to 10 different stocks... and if you want help picking -- then post what you're thinking up here and we'll roll 'em around. With this amount you can get some diversity with sectors and have just a bit of higher risk in order to boost your overall return... balancing out some of the safer lower dividend payers.... but with 20K invested - you should be able to MAKE over $1000 per year... and reinvested -- in 5 years you're going to have capital growth AND more shares paying more dividends and you'll be making the snowball into a snowman!

IF you want to, that is.

Hi Greg
I have been researching some company's that I am familiar with on Google finance. just checking the charts and dividend payout. One thing I learned was to pay attention to the % of the dividend rather than the $ amount as it was confusing me. I was discounting some companies because the divined $ looked low but in reality the % was good. I am not ready to ask opinions on my choices yet as I need to do some better research but I have a question. How do I determine if a stock (company) is "higher risk"? I have been going through this thread trying to find the answer but I haven't found it. So I apologize if it is in here and I am being redundant. As a side This money is in my "if goes up great but if disappears I won't lose a lot sleep" bucket. So I would like a fair amount of risk.
Thanks
Ray

[Coursey]

It seems that Greg has a lot to teach and I have alot to learn. I am in the process of trying to invest my money.

There is alot of good info here. It is going to take a while but I am going to read every last post of this thread.

Great Advice Greg

[GregWeld]

Originally Posted by Coursey

It seems that Greg has a lot to teach and I have alot to learn. I am in the process of trying to invest my money.

There is alot of good info here. It is going to take a while but I am going to read every last post of this thread.

Great Advice Greg

Read the advice with a grain of salt.... This thread is about trying to get people to THINK about investing -- Think in rational ways -- Think about their money in a different light, i.e., as a tool to make you more money. To think about actually doing just a minimum amount of research and comparison BEFORE they invest.

There are ten gazillion OPINIONS about how this is all done... I'm just one of the ten gazillion. So what I'm trying to write about is some basics that folks can use to GET STARTED.

I'm happy that you're interested and like the thread - so far it's been a lot of fun -- and time consuming ----- THERE ARE NO DUMB QUESTIONS... I've tried to put myself out there to show that nobody should be embarrassed about this subject. We ask about car parts and how to weld and how to put bigger tires on our cars etc... and we don't seem to feel stupid about doing that.... so I'm trying to say "let's talk about investing the way we do about our cars" --- I'll show you what I'm doing - that doesn't make it right or wrong it just one way -- and then, like our cars.... you start to take that and "make it your own".

[Bucketlist2012]

Greg,

Thanks for spending the time and the passion to share some ideas..

All taken with a grain of salt, all put into the mix, and not followed without personal research and homework.

Being the non mechanic but crazy driver, I am drawn to this thread.

You have done something that is hard to do...To keep an Investing thread alive and growing...New ideas and discussions all the time..

Why do I say that ??? Try starting a money thread on other sites...They sink like rocks, never to be heard from...

I have pointed a few people to this site to read this thread. I hope they do..

This stuff is what gives us so much...It is not how much you earn....It is what you keep....And then it is what you do with that money, that is a key.

At least the guys on here are hardcore serious... If they buy Coke or pepsi, or one energy distribution over the next..the are doing research and putting the employees to work..

[GregWeld]

Originally Posted by lmnop

Hi Greg
I have been researching some company's that I am familiar with on Google finance. just checking the charts and dividend payout. One thing I learned was to pay attention to the % of the dividend rather than the $ amount as it was confusing me. I was discounting some companies because the divined $ looked low but in reality the % was good. I am not ready to ask opinions on my choices yet as I need to do some better research but I have a question. How do I determine if a stock (company) is "higher risk"? I have been going through this thread trying to find the answer but I haven't found it. So I apologize if it is in here and I am being redundant. As a side This money is in my "if goes up great but if disappears I won't lose a lot sleep" bucket. So I would like a fair amount of risk.
Thanks
Ray

RAY --- Great question!

Glad you saw the light and figured out the percentage was the important part... Frankly - there are so many figures on a page -- a guy can easily get messed up! That's one of the reasons I say to make a page and write stuff down === then go back and look at them all over again --- double check your "facts" and weed some stuff out -- re-check the charts etc. One time I bought a stock but had entered the wrong trading symbol... and ended up with 10,000 shares of some crap I didn't know anything about! Lucky for me - I was able to sell it within minutes and buy the one I was trying to get.


Now to the question about RISK....

Generally --- and this is really really broad brush "generally" -- RISK carries a higher dividend PERCENTAGE... so if something is paying 10% in a "5% world" -- it would raise the hairs on the back of my neck to start looking at WHY THEY'RE PAYING SO MUCH.... There can be MANY MANY reasons... so you need to look at the competition -- look at the sector they're in -- read as many articles as you can find -- so just google them and see if there's something in there that explains the risks (or not).

Now --- remember that this is a very broad general explanation... There could be a very good reason they pay an above average dividend. Kinder Morgan Partners is set up as a Master Limited Partnership and as such they MUST pass through "X" percentage of their income -- so if they have big income - the dividend will reflect that. This isn't to say they aren't risky -- it's just one reason for one company.

HYG (an ETF) invests in high yield (risky) corporate bonds... so they're trying to strike a balance of risk and yield (same thing we're trying to do = right?) and if they do it right -- you get a nice dividend (actually it's INTEREST so be careful here and understand the difference tax wise!) yield. Your RISK is if interest rates suddenly RISE -- then the face value of the bonds they're trading would FALL... and so would the price per share of this ETF. SO..... here's where you need to be DILIGENT and when you hear/read/discover that something is changing (up or down) you need to understand what that will do to your holdings! You can not be a SLACKER and think you can just go blindly about your life and your money will take care of itself. That's not to say you have to look every 15 seconds (like I do) you need to just keep your brain engaged. MANAGE your money and your risk - that's not TRADING! It's just being diligent.

It's like checking your oil and the air in your tires! You don't just put oil in the car once and forget about it.... and if you have an oil burner (A HIGH RISK POSITION) then guess what -- you need to check it a little more often!

Dude! How simple is that for an analogy??

Generally all the discount brokerages have some kind of assigned "risk" gauge/rating somewhere on the stock page when you're researching. I usually glance at these - check the long term chart -- the dividend - then look at a couple more charts -- then compare them with other known competitors and see if I can get a better chart with near the same dividend etc... Then I scan the news associated with the company to see if there's anything I should pay attention to...

[lmnop]

Originally Posted by GregWeld

RAY --- Great question!

Glad you saw the light and figured out the percentage was the important part... Frankly - there are so many figures on a page -- a guy can easily get messed up! That's one of the reasons I say to make a page and write stuff down === then go back and look at them all over again --- double check your "facts" and weed some stuff out -- re-check the charts etc. One time I bought a stock but had entered the wrong trading symbol... and ended up with 10,000 shares of some crap I didn't know anything about! Lucky for me - I was able to sell it within minutes and buy the one I was trying to get.


Now to the question about RISK....

Generally --- and this is really really broad brush "generally" -- RISK carries a higher dividend PERCENTAGE... so if something is paying 10% in a "5% world" -- it would raise the hairs on the back of my neck to start looking at WHY THEY'RE PAYING SO MUCH.... There can be MANY MANY reasons... so you need to look at the competition -- look at the sector they're in -- read as many articles as you can find -- so just google them and see if there's something in there that explains the risks (or not).

Now --- remember that this is a very broad general explanation... There could be a very good reason they pay an above average dividend. Kinder Morgan Partners is set up as a Master Limited Partnership and as such they MUST pass through "X" percentage of their income -- so if they have big income - the dividend will reflect that. This isn't to say they aren't risky -- it's just one reason for one company.

HYG (an ETF) invests in high yield (risky) corporate bonds... so they're trying to strike a balance of risk and yield (same thing we're trying to do = right?) and if they do it right -- you get a nice dividend (actually it's INTEREST so be careful here and understand the difference tax wise!) yield. Your RISK is if interest rates suddenly RISE -- then the face value of the bonds they're trading would FALL... and so would the price per share of this ETF. SO..... here's where you need to be DILIGENT and when you hear/read/discover that something is changing (up or down) you need to understand what that will do to your holdings! You can not be a SLACKER and think you can just go blindly about your life and your money will take care of itself. That's not to say you have to look every 15 seconds (like I do) you need to just keep your brain engaged. MANAGE your money and your risk - that's not TRADING! It's just being diligent.

It's like checking your oil and the air in your tires! You don't just put oil in the car once and forget about it.... and if you have an oil burner (A HIGH RISK POSITION) then guess what -- you need to check it a little more often!

Dude! How simple is that for an analogy??

Generally all the discount brokerages have some kind of assigned "risk" gauge/rating somewhere on the stock page when you're researching. I usually glance at these - check the long term chart -- the dividend - then look at a couple more charts -- then compare them with other known competitors and see if I can get a better chart with near the same dividend etc... Then I scan the news associated with the company to see if there's anything I should pay attention to...

Hey Greg
Thanks again for the great information and also taking the time to write it down. This is exactly what I needed to hear. The more basic information I get the better my research can be. This thread is also opening up conversations for me with my friends about investing and money. Most of them talk about the next big thing to buy. I take all the information with a grain salt write the company down and do my own research now that I have some idea what to look for.

To anyone who is just finding this thread now please go back and read it from the beginning it is worth it if are serious about taking charge of your employees.
Ray

[Woody]

Originally Posted by lmnop

Hi Greg
I have been researching some company's that I am familiar with on Google finance. just checking the charts and dividend payout. One thing I learned was to pay attention to the % of the dividend rather than the $ amount as it was confusing me. I was discounting some companies because the divined $ looked low but in reality the % was good. I am not ready to ask opinions on my choices yet as I need to do some better research but I have a question. How do I determine if a stock (company) is "higher risk"? I have been going through this thread trying to find the answer but I haven't found it. So I apologize if it is in here and I am being redundant. As a side This money is in my "if goes up great but if disappears I won't lose a lot sleep" bucket. So I would like a fair amount of risk.
Thanks
Ray

Ray, I have some imput on "risk" that may or may not be of interest to you.
There are complex models that have been set up in an attempt to measure risk. If you are interested, Google "risk and capital asset pricing models". (You will probably need a finance backround to understand them).


Another method of measuring risk is Beta. Beta is shown in Google Finance and Yahoo in the financial summaries of the stock. A Beta of 1.0 means that the stock moves in direct correlation to the overall stock market. A Beta less than 1.0 means the stock moves less than the overall market and may be less risky, while a Beta greater than 1.0 indicates the stock moves more than the overall market and may be more risky. The things that you have to understand about Beta is that it is based on past performance. Also, Beta is only a measure of the stock price movement. It does not take into account the impact of dividends. In other words you could have a very steady stock (low beta), that pays a large dividend and it could still have above average risk due to the potential for the dividend to decrease.

Along with using Greg's explanation about looking at the dividend (Generally the higher the return, the greater the risk), you can simply look at a historical chart and analyze the magnitude of the price moves. Riskier stocks will tend to move more than conservative stocks. In other words, the riskier stocks will tend to have the biggest price swings (on a percentage basis). They will have greater percentage increases when the market is going up and greater percentage declines when the market is going down.
Just remember these are generalizations.

As you probably know, the general rule of thumb is higher return potential = higher risk. I believe that is how this thread started out. How to get a higher return than what is currently offered by a "safe" low risk money market fund. Not much risk of a money market fund declining, but not much potential return (Currently 1.0% or less).

Just trying to bring another persective to the discussion. Hopefully, I have not overcomplicated the issuse.

[Bucketlist2012]

Originally Posted by Woody

Ray, I have some imput on "risk" that may or may not be of interest to you.
There are complex models that have been set up in an attempt to measure risk. If you are interested, Google "risk and capital asset pricing models". (You will probably need a finance backround to understand them).


Another method of measuring risk is Beta. Beta is shown in Google Finance and Yahoo in the financial summaries of the stock. A Beta of 1.0 means that the stock moves in direct correlation to the overall stock market. A Beta less than 1.0 means the stock moves less than the overall market and may be less risky, while a Beta greater than 1.0 indicates the stock moves more than the overall market and may be more risky. The things that you have to understand about Beta is that it is based on past performance. Also, Beta is only a measure of the stock price movement. It does not take into account the impact of dividends. In other words you could have a very steady stock (low beta), that pays a large dividend and it could still have above average risk due to the potential for the dividend to decrease.

Along with using Greg's explanation about looking at the dividend (Generally the higher the return, the greater the risk), you can simply look at a historical chart and analyze the magnitude of the price moves. Riskier stocks will tend to move more than conservative stocks. In other words, the riskier stocks will tend to have the biggest price swings (on a percentage basis). They will have greater percentage increases when the market is going up and greater percentage declines when the market is going down.
Just remember these are generalizations.

As you probably know, the general rule of thumb is higher return potential = higher risk. I believe that is how this thread started out. How to get a higher return than what is currently offered by a "safe" low risk money market fund. Not much risk of a money market fund declining, but not much potential return (Currently 1.0% or less).

Just trying to bring another persective to the discussion. Hopefully, I have not overcomplicated the issuse.

Woody... No overcomplication at all...Honest, opinions, and knowledge from you.Thanks..

This is an investment thread meant to get us to participate and share...Thanks

again, I am pleasantly surprised that this thread has a life of it's own...every other site i have been on and talked about money, the subject shifts to spending money , and never making it...True they are car sites but man, you would think they would care more....

Oh well....I know what is up, and Investing is what is up...

[ErikLS2]

Pretty good jobs report just came out this morning. I'm far from an economist but to me this is very good news. It was much higher than the so called "experts" predicted and most measured areas saw an increase. Some prior months were revised up as well.

If this continues you can plan on seeing Obama back and I'm not sure interest rates will remain low as long as they had initially planned either. I don't have any big things to buy anytime soon so I say bring on the inflation. That's probably inevitable anyway with all this QE we've been doing to keep the ship afloat.

Here's the report if you want to read it:

http://www.bls.gov/news.release/empsit.nr0.htm