Investing 102

[GregWeld]

Originally Posted by SSLance

I've been loving the recent runup in the market, but it is making it difficult to find spots to average buy ins.

Not pointing at you Lance --- but I've always wondered why people are afraid of the very thing they want ---- rising prices.


I've bought many a share(s) paying higher and higher prices -- and they've gone up from there. That's why I refer to the long term charts -- I want them to be going higher OVER TIME. If you're always waiting for something to go down -- you'll miss out on the ups.

[SSLance]

I know Greg, but go for a walk in my shoes for a bit.

Been in the market for over 15 years, had good and bad times over the years but left a couple of years ago completely dissatisfied with the whole notion. Once I finally decided on a different path to choose when re-entering the market (thanks largely to this thread and the posters here) it was still pretty unnerving to go all in...all at once. My plan was to average in over time, a fifth a month for 5 months.

If you remember, back in late January, early February, you yourself were warning us to be prepared for a down market at the start or possibly all year in 2014.

Remember, I spent 3 years in cash...the little bit I'm giving up by not being all in from the get-go is NOTHING compared to what I gave up then.

I've learned a ton in just the past few months, have found ways to keep myself educated on the companies I'm watching while keeping an eye out for new opportunities at the same time (seeking alpha is fantastic btw) and and still tip toeing my way in when I get the chance.

I'm still a week or so out from making my next advance in, and if I have to I'll buy in at current market prices...and still enjoy it. A dip would just be gravy for me.

[toy71camaro]

Originally Posted by GregWeld

Not pointing at you Lance --- but I've always wondered why people are afraid of the very thing they want ---- rising prices.


I've bought many a share(s) paying higher and higher prices -- and they've gone up from there. That's why I refer to the long term charts -- I want them to be going higher OVER TIME. If you're always waiting for something to go down -- you'll miss out on the ups.

I hear ya.. I personally think its a psychological battle. The old adage "what goes up must come down".. Translating into something like "i want to buy MCD, but its up 10% this year, its got to come back down. so i'll wait. Otherwise, as soon as i buy it, it will drop that 10% the next few weeks" lol

But, as you mentioned plenty of times in the past. You dont get paid to wait when the cash is sitting on the sidelines. At least if your IN, and it does go down, your getting paid to wait - at a discount none the less.

[GregWeld]

Well ----- there's the age old market timing approach of "SELL IN MAY AND GO AWAY".... So maybe for those waiting -- you could wait for a dip in May.


My belief is that wait - and for those that choose to reinvest the dividend - you miss another dividend - whereas if you're in - and pick up the dividend - and it buys some shares lower you're lucky and have gotten paid AND you buy some shares lower and your next dividend is larger which buys more and on and on and on.


Personally -- I'm not worried about what price I pay NOW because I plan to own the shares for YEARS not weeks... and when and if I get ready to sell them - they should be far higher than the price I paid today.

I currently have several holdings (remember the size of my holdings) that are underwater by 100K and more. I could care less.... they're paying me 20 or 25K per QUARTER.... and that alone will take care of the red numbers. That's what I really invested for in the first place. The other part doesn't really matter because I'm not selling them now. It's even less important if your time horizon is 10 years out...


Having said all that --- I certainly understand the psychology of wanting to buy lower.

[SSLance]

I am keeping an eye on the ex-div dates of my holdings and will make sure not to miss any of those for sure.

[SSLance]

BTW Greg, don't ever let up on what your are posting and preaching...

After thinking about what you said a bit today, I went ahead and made the purchases I was looking at making. No time like the present...

From what I'm seeing, Dividend Champion stocks don't really make big moves, they just kind of trod along...so it really doesn't make much sense waiting for dips to buy as the dips just aren't that big of a deal.

[GregWeld]

Originally Posted by SSLance

BTW Greg, don't ever let up on what your are posting and preaching...

After thinking about what you said a bit today, I went ahead and made the purchases I was looking at making. No time like the present...

From what I'm seeing, Dividend Champion stocks don't really make big moves, they just kind of trod along...so it really doesn't make much sense waiting for dips to buy as the dips just aren't that big of a deal.

It really depends on the goals Lance... if the goals are to have total return over an extended period of time.... and if the goal is to own the best companies... and the goal is to get get paid every quarter... then buying down 50 cents or even 5%.... a guy can wait and miss an up 10% move - or miss a dividend payment.


I say just put the money in on a regular basis, i.e., the first of every month or the last Friday of every quarter or whatever. Just buy it - start collecting... don't freak out on down days or down periods. When ya get nervous - go back and look at the longer term charts.


Those payments they call dividends - that's why I can just go out and play and enjoy myself. 'Cause I don't really have to worry about what the market did "today" or this afternoon - or even this month. I TRUST my companies to keep plugging along and to send me my portion of the profits. :>)

[GregWeld]

In checking my accounts this morning - as I do EVERY morning.... I was reminded of the "should I buy now or wait for better prices" discussion was still fresh in my brain.

The account that I use for examples in this thread has 7.5MM in 9 names... and currently has a RED (negative) cost vs current value of 185K....


So PERFECT for this current topic right!?! I paid higher prices for the AVERAGE cost than where most of the names are trading. Kinder Morgan Partners (KMP) being the #1 underwater name... with a current (loss) of 211K on a investment of 1.82MM (22K shares). Some have green numbers but obviously not enough green to cover for the red! NORMAL investing. Over time these change and some of the "green" will come down or go red - and the red will change and go green or go more red.

Here's my point for the share this morning.


That account spins off 506K in dividend income. All the while (today) showing a "loss" of 185K in paper value. I don't care about the "loss" -- because it's not a loss until I make it a loss by selling. I'm not selling - so it's not a loss. And with that income - that loss is covered in less than 6 months of the income that is generated. The INCOME is my goal. If it was reinvested (as most all of you should be doing) then it would compound at better rates by automatically averaging down my costs. And the new shares that would be purchased at lower prices actually pay a dividend at a higher PERCENTAGE rate.

Now - that doesn't mean that I don't keep a keen (AWARE) eye on each name I own. Some of the names that are in that account are actually positive in other accounts I have. Confusing I know but I have multiple accounts - and as long as NONE of the investments in total are larger than 5% of what I have to invest... then it's okay to own them. Some of my accounts are inside trusts (for tax and death purposes). I'm laughing at this - because I wish all of you had such issues!

Anyway -- all I'm saying is -- think longer term - constantly review your holdings and WHY you hold them.... always question a loss.... why are they down? Is there an issue with the company? Is there an issue with the industry (let's compare BlackBerry (BBRY) vs the telecommunications industry) vs the companies performance? Etcetera....

If all is okay -- and you can't come up with a valid reason for selling at a loss... then sleep well. Don't fail to question... but don't freak out just because you're down 1% or .50 a share --- when they're sending you that much per quarter. But also don't hang on to a bleeder that you're worried about and can't explain to yourself WHY you own it.

[GregWeld]

Originally Posted by SSLance

BTW Greg, don't ever let up on what your are posting and preaching...

After thinking about what you said a bit today, I went ahead and made the purchases I was looking at making. No time like the present...

From what I'm seeing, Dividend Champion stocks don't really make big moves, they just kind of trod along...so it really doesn't make much sense waiting for dips to buy as the dips just aren't that big of a deal.

Regardless of whether or not the shares are on the famous "Dividend Champions" list... or where they place on that list.. the beauty of dividend stocks in general is that they continue to spin off cash - which is either re-invested or used for some other purpose. That's the beauty of the simplicity of this type of investing.

For instance (another example only please!) Kinder Morgan Partners (KMP) has been down for awhile now... when it was one of my biggest gainers... but REGARDLESS of what it's trading for today or last week.... it pays me $9973 PER MONTH in dividend. It doesn't make any difference what that number is - each person has their own level of shares in various names etc - but for me - that is the number. Now.... when I look at the holding --- that's a very good cash return (over 7%) and my larger concern going forward is -- will they continue to pay this kind of return? So my larger concern is how is their business going and are they capable of earning enough to continue to pay me. As long as I see that their capable of continuing to pay -- then I'm happy. The share price will only become important IF I wanted to sell. Even then.... I'd have to say to myself -- WELL -- They've paid me $5.44 per year per share... I've owned them for 3 years and collected $16.32 in cash.... the shares are "underwater" (for example) $6.... Do I really have a loss in the shares if I sell??

I would have less of a return on a percentage basis -- but I wouldn't have a cash loss. The longer I hold and the more I collect... eventually they will have returned to me everything that I paid. At current prices I have to hold this name 13 years.... after that -- everything they send me is free money! We will ASSume that the share price is even and has no growth during this time period. That's not a bad return over time -- so once again the actual share price day to day becomes less important.

Does that make sense?

[GregWeld]

Just to be sure --- What I'm discussing above is more about a WAY TO THINK about prices - and when to buy and blah blah blah. The goal is important... the amount of time allotted to that goal. What is your purpose for investing. Is buying down .50 cents today more important than the long term goal?

I posted the "bull market" vs "bear market" charts to show the returns available over various periods of these kinds of markets.

Here's something that I've been shown in my own accounts time after time....


IF I'm up 100% over the last 4 year period -- and I'm now down 30% this year (example only!) -- I'm still ahead, right?

If I'm NOT in the market at the beginning of a bull market I probably lost part of that market's run. Example - if you waited until '10 to get back into the market after the '08 bear was done -- you'd have lost a huge part of the overall return. So look at it this way (made up numbers for example) --- '08 sucked you started with 100K and went down 40% - so you started '09 with a big loss and "only" had 60K invested....but since then you're UP (using the QQQ Dec 08 til today) 191%... You've made all your money back plus some! Had you sold and gone all cash and sat on your hands... you'd just have a huge loss. You'd have made .25% interest on a bank account.... versus the 4 or 5% dividend (compounded and reinvested in shares all along at cheaper prices) and blah blah blah.

Those bull / bear charts show the REMARKABLE rebound the markets make ----- and thus ---- my oft repeated the "chart is lower on the left and higher on the right". Over TIME you are rewarded. Over time - you WILL suffer pain and angst - and then be richly rewarded.

IF YOU'RE REALLY SMART -- YOU'll BUY LIKE A PIG WHEN THE MARKET IS AT IT'S WORST.... but who really does that? It's far more typical to buy when the market is doing well... regardless of whether we're buying stocks - or houses - or cars.