Investing 102

[GregWeld]

Here's something about Apple (AAPL) I wasn't aware of.... apparently part of the 7:1 stock split (which means for every one share you own - you'll get 7 - and the price will be DIVIDED by 7)... is that they didn't have enough "float" (number of shares issued) to be included in the DOW. With the split - that removes that barrier.

THAT is a very big deal - because it means that every ETF or Mutual Fund MUST buy the shares if their "fund" is based off tracking the DOW. MANY MANY companies mirror the DOW. So typically once a company gets included in the DOW --- there is a lot of pent up buying demand.

Now -- the INVESTING 102 takeaway --- buying just based on something like that -- is GAMBLING -- it's not INVESTING. If you want to own the company make certain that you're buying it because LONG TERM it's a company that you want to own.... DO NOT buy because you THINK you're going to get a big pop. When you buy like that -- the pop doesn't happen -- the stock disappoints - and YOU LOSE MONEY. Don't fall into that line of thinking because it's a scenario that sets you up for failure. You'll be right one in ten times.... that's not good odds and isn't how you get fat financially. If you're rich already -- and have money you can afford to throw around - then maybe you can afford to do that.... but that's not smart money.

[CamaroMike]

Duly noted.

[toy71camaro]

When that big pop happens, It'll likely be time to get ride of the 0.025 shares I have of it. LOL.

Back in '98 or so I bought i think $25 or $50 in my personal account and my Roth. And havent touched it since. I think my purchase price was around $200.

I've been waiting for some big news to happen to get them back up to where they were for a short time ($700) to make it worthwhile to get rid of those minuscule shares, and put the $200 profit to work elsewhere. Tiny numbers, but hey, that was my first purchase I think. lol

[GregWeld]

Originally Posted by toy71camaro

When that big pop happens, It'll likely be time to get ride of the 0.025 shares I have of it. LOL.

Back in '98 or so I bought i think $25 or $50 in my personal account and my Roth. And havent touched it since. I think my purchase price was around $200.

I've been waiting for some big news to happen to get them back up to where they were for a short time ($700) to make it worthwhile to get rid of those minuscule shares, and put the $200 profit to work elsewhere. Tiny numbers, but hey, that was my first purchase I think. lol

I would't sell it --- why bother? It's in your account -- it's a GREAT company -- it costs you nothing to hold it. And now they're going to give you 700% more shares... and they raised their dividend payout by 8%... WTF is wrong with that.

Seriously -- I don't know how you could take $200 and do any better than have it in AAPL.

[GregWeld]

Since we're smack dab into high gear with EARNINGS season (happens every quarter)....


How many of you have come to the realization that EARNINGS MATTER when companies report.

Two things matter the most to your holdings -- EARNINGS and FORWARD GUIDANCE. In other words --- is the company growing (more sales) and better profit margins --- AND what they think they're going to do in the future. Miss earnings -- or give poopie forward guidance and they get taken to the woodshed.


This is where the P/E ratio comes in to play. P (price) to E (earnings)... P what the stock price is --- divided by E earnings.


When you have a HIGH P/E -- people are betting that the company will grow into the stock price... Own a high P/E company that misses -- or gives poopie forward guidance (or both) and it's Kattie bar the door.... the price comes down BIG TIME.

People ask me all the time about P/E. It's not a metric I use because for the most part the P/E's on the companies I own are "in line"... Since they're dividend paying companies - they're really not the big "growth" companies. Big growth companies are Amazon (AMZN) P/E 483 - Tesla (TSLA) P/E 0 because it has no earnings (I own it just because it's cars - and they're cool) - NetFlix (NFLX) P/E 125 etc

Versus -- Altria (MO) P/E 17 -- AT&T (T) P/E 10 -- British Petroleum Prudhoe Bay Trust (BPT) P/E 9.5

[glassman]

So, let's use "Tesla" for example, because their a publically traded company, do we know how long it will be before they have earnings? Are they sorta considered r&d (research and development) for now until we "know" when they will start posting earnings relative to production?

I'm glad you resaid what you did about earning p/e cause I'm just begining to grasp that mathematically.

[sik68]

Tesla has shown a profit (which would result in a Positive P/E ratio) in one or two quarters in the past, but they are intermittent. For a company that's drastically ramping up like Tesla, turning a profit really depends on when the big checks are being written.

[GregWeld]

Originally Posted by glassman

So, let's use "Tesla" for example, because their a publically traded company, do we know how long it will be before they have earnings? Are they sorta considered r&d (research and development) for now until we "know" when they will start posting earnings relative to production?

I'm glad you resaid what you did about earning p/e cause I'm just begining to grasp that mathematically.

To use Tesla as an example only - not a particular "stock" pick....



I bought Tesla (TSLA) more for "fun" than as an investment. While I HOPE that it will grow and prosper (I do have a quarter million dollar investment in it)... I don't expect it to be anything but VOLATILE. Big swings up and down -- because a name like this is MOMENTUM and NEWS driven. Bad news -- stock gets hammered -- Things going well -- the momentum investors jump in and drive it up (until they find a new name to jump on).


A "start up" company often is not expected to be profitable (WTF -- AMAZON HASN'T REALLY BEEN PROFITABLE IN 20 YEARS!). It's more about GROWTH -- FUTURE PROSPECTS... and blah blah blah. It's gambling pure and simple. You're gambling that the management can grow the company and finally make a profit. In the meantime - they must manage cash flow to expand - experiment - acquire - ramp up people and processes... so while FREE CASH FLOW might be fine -- that doesn't make them profitable. The cash flow is supporting the expenses to build a business.

Why people pay up for this kind of a name (pick one) is because they can return HUGE returns over time. Take Amazon -- which really isn't very profitable and trades at a P/E of almost 500 (their stock price is 500 times what they're earnings are).... the stock (different really than the company) has returned a 17,681% growth to an early investor. Pretty good gamble.

The quarterly reports are the best place to find the type of info you asked about. Or a guy can get in on the conference call - the numbers to call are always published usually easiest to find on the company website... You dial in - you can not interact. Companies are very skillful in managing what they say "going forward". They are best off to err on the low side of what they really think - so that they don't get into an investor lawsuit.

For instance - with Tesla (TSLA) they reported higher than forecasted sales numbers -- and have said that they expect a 55% sales increase..... and that CHINA and Europe are just huge untapped markets. So that's what is driving the stock price.

Now -- If you go back in this thread -- I've discussed stocks that are "priced for perfection" -- and a name like Tesla fits this to a T. They can not hiccup... they need to continue to not only forecast correctly -- they must EXCEED their forecasted numbers. If the do - they stock continues to be okay -- but hiccup and a guys gets cut in half before he can hit the sell button. It's gambling. Play with money you can afford to watch go up in smoke. And this can happen at any time! You can go along and be fat and happy -- and overnight you get your ass handed to you. And we're talking about any name that fits this type of "investment" --- Facebook -- Amazon --- Netflix --- Tesla --- They're fun while they're going UP -- but they can fall far faster than they go up. So be careful with this stuff.