Investing 102

[GregWeld]

Originally Posted by Woody

One thing to watch out for with REITS is that they are very interest rate sensitive. If you believe we are going into a rising interest rate environment you could expect lower share prices. The last few weeks is a pretty good example. As the 10-year yield has risen, most REITs share prices have declined.

I've warned here many times - that when interest rates rise - stocks die. Of course this is over simplification... but it's very very interrelated and must be given some measure of attention. However... if you went in and out of stocks over every interest rate move - you'd just be losing time and again so that's really a dumb strategy. The better strategy is that NEW MONEY would go into a higher yielding "whatever". Let's say tax free bond rates hit 6%... then that's where you'd put some new money to work. The problem with bonds is that they don't come with the compounded growth that stocks do over time... and generally -- if it's s dividend paying stock - the price action (taking the share price lower) is supported by the dividend -- so when you buy new shares at lower prices - your yield (dividend percentage) has risen... so you get a new blended rate of yield.

This is when things can get complicated --- but that's also usually easily explained = normally foreseen - and discussed when these thing occur.

[GregWeld]

I wish I didn't have to start a post with these kinds of statements - but here it goes again. I'm only using this stock as an EXAMPLE. I'm not saying anyone should buy / sell / or hold it. It's just a current example for Investing 102.


FUNDAMENTAL CHANGES in a company - or bad news about a company - affects it's SHARE PRICE. You must pay attention to this kind of stuff -- and if possible - try to be "EARLY" in your decision making process. You don't want to be the last guy stampeding to the door when someone yells FIRE...


McDonalds (MCD) HAS BEEN a fantastic money maker for investors for many years. It's had steady growth - it pays a nice dividend - it's a name that everyone loved and trusted. In other words - it was a stellar investment you could count on. History can help GUIDE us in making investing decisions. What else do we have to go on? Your gut feelings - your basic knowledge - and a little research for historical facts and figures... there really isn't anything else. We certainly don't have crystal balls.... or do we??

Hmmmmmmmm......


You've read me preaching about buying companies you understand - the ones that perhaps make products you use... or where you buy gas - or lumber - or tires... whatever. Remember - this is BASIC INVESTING.... so if you're a beginner with "X" amount of dollars to invest. Might as well start out with a name or couple of names you know. McDonalds fits this bill perfectly. That's a good way to begin - or even add to your portfolio. BUT this is only the beginning - it does not let you off the hook for being DILIGENT about your money. IF you're not diligent about your investments... who do you think is going to be? Me? Hell no! Not my job to write daily about what I think <even though I do sometimes>. It's YOUR JOB to pay attention. So with that in mind here's why I write today.


A few months back - maybe even a year or so ago -- I wrote that I was considering selling my McDonalds stake. I don't eat there any more - and when I did / do - it was very disappointing. The food was cold - or not prepared well... the stores seemed to be dirtier than they used to be... Many times I could not understand the employee taking my order (I F'n HATE THAT - this is AMERICA where we speak ENGLISH).... I cut them some slack because historically this was a good company and we had "history" together and it was a base holding of mine. However - I tend to run around the country a bit... and it didn't seem to matter where I was - the stores had the very same slow service - dirty floors or tables - poor food quality. THIS IS A FUNDAMENTAL CHANGE... and I needed to listen to what my guts were telling me. CUT AND RUN. I wrote here that I was selling my stake. I'd had enough --- and more importantly maybe I WAS LOOKING INTO THE CRYSTAL BALL. My brain seems to function just fine (relatively)... and if I'm not a happy customer - perhaps other customers are feeling the same way. Eventually this will affect the sales - which affects the share price!! DOH!! Not rocket science.

Sure enough -- we begin to get reports of same store sales declines... This info only serves to reinforce my crystal ball prediction. That doesn't make me smart - that just tells me what I thought might happen - is happening.


If you always go to Lowe's (LOW) and you suddenly think - WTF this store has turned to crap I can't find what I want - and you get in your car and drive to Home Depot (HD) and you're suddenly happy.... and you own LOW... maybe you better switch it up. Maybe it's your cellphone provider... Verizon (VZ) vs AT&T (T). There's a zillion examples I could drag out here.... Are you an Apple (AAPL) fanboi? Suddenly you find yourself buying a Microsoft (MSFT) laptop instead and loving it. Better pay attention to that if you own APPL shares.

So today I wake up to find this article.... which prompted this post. Now news organizations are writing about "my" feelings. That can't be good.


http://www.usatoday.com/story/money/...part/15908697/



THE ONLY POINT HERE IS THAT YOU SHOULD BE A PRETTY DECENT JUDGE FOR WHAT'S GOING ON.... and this works particularly well if you're buying companies you know and understand and use. If you used to shop on eBay daily and you find you haven't shopped their in months -- stop and listen to that!! It's telling you something you should be aware of - particularly if you own the shares!! USE THIS TO YOUR ADVANTAGE don't toss this valuable info
aside. Use your guts and your brains to help you! We're not always right - but sometimes we can sorta be right - and sometimes we're dead wrong - but it's the only thing we have going for us. In investing - we only need to be right a little more than half the time.


++++++++++++++++++++++++++++++++++



Okay then -- that brings up another opportunity. Buying the turnaround. This really isn't INVESTING 102... but I'm adding the info anyway.


Let's say you were so brilliant that you sold your McDonalds (MCD) - I have to chuckle at myself here... and you've been out for awhile. Now let's begin to continue to pay attention to the share prices and the news. There may be a buying opportunity when they get low enough and the management starts to right the ship!! Then you'd want to be "early" and try to dribble back in to the shares as they begin to find their footing again. Nobody knows when a company is going to teeter --- or if they can save it --- how long that takes -- what that looks like.... but it's my job to manage my money (employees) and I've got to be constantly on the lookout for opportunity. Sometimes I get it wrong.... and that's why I don't go whole hog into anything. I SCALE IN or even scale out if you're unsure. I've usually lost the most money when I was 100% positive I was so right I couldn't possibly be wrong.... <Buzzer>

[glassman]

So true, so true. i'm optimistacally long on MCD, (its "sentimental" to my wife, her first job and a lot of quality relationships came out of it). But its a very small part of my/our portfolio.
#5 of that ariticle was spot on (well they all were) when "whats next" for the company? what to do? Little pressure for the CEO

Its easy for us to understand MCD, but the more complex stocks like tech and biotech i'm effin lost. Can't even go with a gut on those.

But like you (Greg) said "BE DILIGENT" and watch, some things can happen like a theif in the night.

on a side note, speakin of English, why do they print the DMV booklets (here in commufornia) in eight languages but the roadsigns in one?

[GregWeld]

I found this to be interesting and worth reading and making note of what's being said.


http://www.forbes.com/sites/eamonnfi...mas-alibubble/


I made a killing during the dot.com era.... I'd buy half a million of Microsoft/Dell/Intel/Cisco/Juniper.... in the morning - before noon I was playing golf after flipping them out up .50 or a buck a share...

The only thing that bailed me out was paying cash for a house built in 1923 and gutting it and doing a year long remodel... using the cash that I was flipping over and over. So I was busy doing the remodel and quit trading during the end of that period. Otherwise - my guess is I'd have lost half or more in a manor of weeks.

It all seemed so easy! Every day - every thing went up... but people weren't buying companies - they were just buying hype... and there were more buyers than sellers. Ultimately the above names became real companies and have made money -- but I can give you a list of fly by night dot.coms that were nothing - made nothing - and only counted "eyeballs". POOF! They're gone.

I don't think Alibaba is a nothing.... and I'm not choosing a side here - don't own it - probably won't for no other reason than I prefer income over a "maybe" --- in the meantime - a maybe can make millions --- we'll see how it all plays out.

[SSLance]

We got lucky like that back then as well Greg. We had a defined benefit pension plan through our company (2 officers, 3 employees total at the time) and were very aggressive with the contributions and investments during the boom. We made so much money inside the plan that our actuary told us that any more money made in the plan would all go to Uncle Sam, so we sold everything and went into bonds, right before the bottom fell out.

Sometimes it IS better to be lucky than good.

[GregWeld]

My favorite saying! "Better lucky, than smart!"


Lots of people are extremely smart and never lucky... and some really smart folks are just unlucky. We all should do our best to put ourselves in a position to GET LUCKY. If you don't ever try - then you're doomed to fail.

A buddy of mine is ultra conservative -- always in bonds for 35 years... an ardent, serious saver. While he's done very conservatively well for himself... He COULD HAVE put that bond money into dividend paying stocks - even half of what he saved - and he'd be living the life. He's smart and diligent but he's never been smart enough to do the work required to see that his investments weren't always in his best interest. A tax free return of 3 and 4% but zero growth in his capital always cost him total return. He WOULD HAVE BEEN REALLY LUCKY had he put himself into the Coke's and McDonalds and Mercks of the world years ago... He's always telling me how lucky I am... and I ask him - did I put myself in a position to get lucky? Is it really luck at all? Must be 'cause I'm not real smart.

[chichirone]

When I began reading this Investing 102 thread, I started doing research on dividends to better understand the investment tool.

Here is a link that explains the basics of dividend stocks. I wanted to share. It may be helpful to someone else looking to get started.

http://www.investopedia.com/articles.../04/072304.asp

All the talk about "luck" reminded me of a saying, "99% of luck is preparation."

[GregWeld]

Okay -- So here we go.... Alibaba (BABA) is down today rather than continuing to go up...

My point here is not to discuss any particular stock - but to use 'em for examples.

So if you were a buyer (at any price) of BABA.... and this morning it's headed south... how are your guts when you look at your account? Do you REALLY know anything about the company? Do you really understand the price/value... or is this a pure speculative buy based on nothing more than the hype? The answers are easy when it's going up... they're not so easily answered when you're losing value/money.

YES -- this is only one day.... and that's not my point. My point is -- are you truly ready mentally and financially to "gamble".... That's something nobody can answer until they're doing it. Some love it - most people I know don't. Pay attention to your response to yourself... and if nothing else - learn from it.

[Sieg]

Door #1 - Alibaba

Door #2 - Alibooboo

Door #3 - Aliboomboom

[GregWeld]

Originally Posted by Sieg

Door #1 - Alibaba

Door #2 - Alibooboo

Door #3 - Aliboomboom

Well that's a prediction I wouldn't presume to know. And the reason I say that is because if you were an IPO buyer of Microsoft (MSFT) in 1986 -- the chart will show you an UNDERWATER stock for a couple years!! So the reason for my post was more about teaching/questioning as an investor --- ARE YOU WILLING TO SUFFER?? How much?? How LONG? Can you really stand the heat?? You may be rewarded or you may not. Nobody knows. If a person is willing to buy these types of "investments" -- they NEED to know themselves and whether or not they can handle the stress that comes with them. That was my point. Nothing more - nothing less.