Investing 102

[SSLance]

Originally Posted by GregWeld

Lance ---- There's a term for this! It's called "Paralysis by Analysis".


LOL

My Dad refers to it as Mental Masturbation...

[GregWeld]

I have a few shares of AT&T (T)... namely 30,000 shares of it... So it's a stock that while I consider it in that "steady eddy" bandwidth... because I don't expect them to suddenly spurt up --- I also don't think they'll drop much either. They pay a solid dividend... that's above 5% and that cushions downside risk.

I do however always keep up with "trends" -- and this is not only fun - but increases my awareness of what and why I'm invested in something. It takes some time - but I love it so no biggie.

I find this article about Apple - and about the cell phone industry which T is a member of very "interesting". As consumers - sometimes we just don't SEE what's happening competitively in an industry. But this article - while about Apple - sheds some really good light on cell phones in general. And particularly about how they're sold etc. What's good for one company might just affect another one negatively or vice versa. In this case -- NOT subsidizing cell phones might hurt Apple - but in the long run might be good for AT&T and Verizon (VZ) etc. Or it might be revenue neutral. Who knows.

I just thought it interesting.




http://www.fool.com/investing/genera...idies-att.aspx

[GregWeld]

Today brings up a good day to talk about stocks that I avoid -- and why.


I avoid stocks that are "priced for perfection"... I've posted about this several times. Stocks that might be fantastic companies -- but they are so loved that everyone wants to be in them - which drives the share prices to levels that are
only sustainable IF * always the big IF * they can maintain spectacular growth. One teeny tiny hiccup -- and BAM! You get slammed.

Examples lately.... Apple.... slammed down $40

Amazon --- BAM! Down $30 today


These are both GREAT companies.... but their share prices have been way out in front with huge expectations of continued greatness.


I avoid LOW END retailers....(Wal Mart etc) actually I avoid anything that's main business is LOW END. Why?

Because the poor folks that shop there are just that -- poor... and they have the least amount of cushion in their budgets to absorb any offsetting cash flow disruption. Such as - a cut in hours worked - higher gasoline prices - higher heating bills etc. It just seems to take less and less "disruption" to have people slam their wallets shut - which of course - affects the sales and profit margins at these type of companies.


I like companies that pay above average dividends and whose customer base is broad based -- and companies that people MUST buy from.

When you see a down market --- you'll see that the companies that pay above average dividends will fare better. Why? Because as the share price decreases -- the dividend paid percentage increases - making them attractive relative to other income assets. It doesn't help your cost basis... if you bought at $35 and the dividend is 5% --- you're still only going to get your 5%... and you'd have a temporary paper capital loss on the books.... but your shares will most likely have gone down LESS than the market in general. So the dividend cushions on the downside... and regardless of what the current share price is - they're still sending you a check.

[Vegas69]

So I have my 10 stocks and I'm getting ready to make my next purchase in a down market. Would you invest in one of your current stocks at a lower price than your initial purchase or buy a new company? My thought was to invest in a current holding. I believe you call that cost averaging? The next question is, would it be one of the best performers or worst?

[GregWeld]

Originally Posted by Vegas69

So I have my 10 stocks and I'm getting ready to make my next purchase in a down market. Would you invest in one of your current stocks at a lower price than your initial purchase or buy a new company? My thought was to invest in a current holding. I believe you call that cost averaging? The next question is, would it be one of the best performers or worst?

Good questions Todd!


So === I personally average in all the time. I added 5,000 shares of Altria (MO) on their "earnings miss". That buy in isn't enough to really bring my average cost down much (I already had 25,000 shares) -- but it makes me FEEL GOOD to buy it down a bit.

Two thoughts on your question of adding to biggest loser -- or best performer...

Examine WHY your loser is a loser.... this is critical to not try to "catch a falling knife" --- so WHY it's down is very important. If it's just down because of general market dipping --- or is there something fundamentally going on you need to be aware of.

Don't fear chasing market performance or growth. There's not a thing wrong with buying a stock or adding to shares when they're up a little. The shares are doing exactly what you wanted them to do - so why would that put you off? That's a rhetorical question.

If you feel you're diversified.... then adding to existing holdings rather than adding a new name can make you more comfortable in a down market... but sometimes if you're still trying to diversify - then the market has created a good opening for you to "get in".

I'd buy when the YEAR TO DATE price is in the 7 or 8% down... Remember that 2013 was far more than just an exceptional market... unlikely to be repeated. So 7 or 8% off "the highs" is a good starting point.

Remember that what is your worst performer this month - can be a good performer by year end. That's where patience comes in to play.

[GregWeld]

Here's another thing I think about whether it's buying or selling.


Make a list of what you want to do -- a PLAN -- Put down important things like your average cost -- what the "EX" date is for the next dividend... Making sure you put a "MUST BUY" or MUST SELL before whatever dates you plan to use. There's no rush generally to buy or sell.... so if you have a plan in place that you can look at to keep you on track it will help.

Why sell a stock 5 days before you were to get a dividend of .40 a share?

Why not try to buy a stock either just before it's EX date - or After it trades EX and either pick up the dividend -- or buy it on the dividend "dip" effectively collecting the dividend via the discount.

Check for their EARNINGS ANNOUNCEMENTS.... I'd never buy a stock like Amazon just before their earnings announcements. You can get crushed overnight... so be patient and wait to find out what they're saying about going forward (the most important part of earnings!). If it jumps up so what - things are fine and earnings are good and they say the future looks bright. Better than than buying in and they miss earnings and say going forward sucks and you get killed 15% in one day.

[GregWeld]

Okay -- I'm a post whore.... but I love this stuff -- and a mixed market - or down market gives me new stuff to talk about. Last year became difficult to find anything new to discuss because the market just went up day after day.


This morning - if you'd have looked at your accounts - you'd have had a frown on your face... EVERYTHING was red. While waiting on Adrienne (my daughter) to make breakfast... I noticed that the market was down 188 points or so -- yet I had 4 stocks green.... and frankly - the stocks that I own weren't down very much... I like that - and my theory that dividend paying big names hold up better in selloffs has always been true - and it's showing that in my accounts.

Within a hour or so --- I note the DOW is down 122 points -- but every single stock I own is GREEN...


I thought back to 1997 or so and remembered how I would have reacted to the big down red day --- I'd have SOLD everything losses be damned! Only to turn around and pay higher prices for the same shares a day later when they went green. What a fool's play that was. Now -- I look - shrug my shoulders - look to see if there's something I should be BUYING....