Investing 102

[GregWeld]

A stock I used to own - Terra Nitrogen (TNH) - is THE PERFECT example of the relationship of DIVIDEND to PRICE action. I'd like you all to go to GOOGLE FINANCE -- open up a chart of TNH - stretch it out to the FIVE YEAR (so you can see the dollar amount of dividend paid)..... This should be an eye opener.

Note that as they INCREASED the div - the price went accordingly - but look what happens when they start to cut it!!

What's my point? Be very careful when "chasing yield"!! There's a reason that the yield percentage is so "tantalizingly high"... that comes with RISK! Risk is okay when it works out in your favor. Painful when it doesn't!! And you can only buy RISK assets when you're very actively managing them. They're not buy and holders / sleep well at night investments. Learn the difference.

[glassman]

Nice post Greg.

[GregWeld]

We've talked about this "metric" (a way to measure things) in the past -- and I've said that I don't really look at it - because a fast growing company could have a sky high P/E (Price to Earnings ratio)... yet - isn't growth what you want in a stock?? Or there may be some other compelling story as to why the P/E is a little out of whack vs it's peers. It is ONLY ONE metric... useful yes - but not a sole criteria!

Here's a very good explanation of a whacked out P/E in a stock I own (20,000 shares)... So I thought I'd share it here.


http://www.fool.com/investing/genera...ok-pricey.aspx

[SSLance]

I don't know about everyone else, but the market activity the last two months has been a great learning experience for me. In years past, when I had a Financial Advisor that set my portfolio up for me and didn't really understand the objective, watching my net asset value plummet like it has a couple of times recently used to set me off the edge and make me lose sleep. I'll admit to being guilty of asking him to pull at at times like these, sometimes he'd talk me out, other times he wouldn't.

This time around, after watching the investments that I personally chose (and knowing WHY I chose them) dip in value...my first thought was to pick up more of them while on sale instead of running for the hills. I've been reaping the rewards of those actions the past few weeks now.

Nobody can tell where Mr Market is going to go from here on out, but as long as we all just keep on building up shares of the companies we like...eventually we'll have the dividend paydays that we need to enjoy our retirement years.

[WSSix]

Glad you're more at ease this time around, Lance. I'm in the same boat.

[GregWeld]

WOW!!! I think you're my most successful "convert".

One's view of the market must be in terms of years - not days.... it's a long slow up and down battle... which takes time to play out. But like houses - and commercial property - and many other assets - UP is the general long term result. Collecting cash payments (cash or re-invested) is so satisfying along the way!!!

Originally Posted by SSLance

I don't know about everyone else, but the market activity the last two months has been a great learning experience for me. In years past, when I had a Financial Advisor that set my portfolio up for me and didn't really understand the objective, watching my net asset value plummet like it has a couple of times recently used to set me off the edge and make me lose sleep. I'll admit to being guilty of asking him to pull at at times like these, sometimes he'd talk me out, other times he wouldn't.

This time around, after watching the investments that I personally chose (and knowing WHY I chose them) dip in value...my first thought was to pick up more of them while on sale instead of running for the hills. I've been reaping the rewards of those actions the past few weeks now.

Nobody can tell where Mr Market is going to go from here on out, but as long as we all just keep on building up shares of the companies we like...eventually we'll have the dividend paydays that we need to enjoy our retirement years.