Investing 102

[GregWeld]

To take a play on the "sold at a loss" theme that Mike just showed up in the previous post... Let's use McDonalds (MCD) as an example.

Here is a chart on Google Finance...

http://www.google.com/finance?q=NYSE:MCD


If you click on the "ALL" choice for the chart -- you'll see many "peaks" -- and also many "valleys". If you'd bought at one of the peaks --- pick any one of the MANY -- but in particular lets say you bought your first batch in 1999 and and sold in early 2003....

It is the lack of long term confidence that would have 'cause you to sell... and now look at how big of a mistake that would have been!

Not all stocks have a chart like this... but that is why you need to have real conviction in your choices TO START WITH... this is why you DO NOT buy some recommendation from the clerk at the grocery store when he gives you his "hot stock tip of the day". That will cost you money every time! Why? Because if it so much as hiccups -- you'll blow out of there at the very first chance and then you'll have taken a real loss.

If -- big IF -- you buy stocks in companies that you like - know - understand - are best of breed... then you'll buy MORE of them as the share price comes down and you'll lower your average cost and you'll sleep well at night with the understanding that in the long run - you'll come out a winner.

Investing -- that's the key term here -- takes time -- it takes commitment -- and most of all it takes some research and confidence that what you've bought is "good stuff".

Another example of this might be housing.

The people that bought houses at the peak -- then bailed or failed... they have a real loss... the guys buying them now... they might suffer for awhile.. they might even question why the hell did they do this... but you've got to believe that the prices will come back. When? Who knows? I have no clue. But I gotta believe that this is "temporary" - it's the scale of temporary vs. the longer term. We won't know what temporary was until we have a longer view, and that view needs time to develop. In the meantime - like a dividend paying stock - the renter of the house will pay towards the mortgage - and eventually you'll have a nice investment even if the price never recovers fully.

[glassman]

Housing is strange. Their building by my office (Dublin, ca) 700 to800k but just over the hill (20 miles away) the community of Mountainhouse continues to take it in the shorts (mid 150's)....(talking residentual)

The ability to collect proper rent is in the simple of supply and demand. I just dont see the jobs in the area to substansiate postive cash flow.

I used to like the idea of property (its how my dad made is money in the 80's), but i'm liking stocks more and more.....

Thank you for the education i am continuing to learn reading this thread...

[GregWeld]

Rentals - whether it's single family or multi - all have one investment strategy in common... someone else is paying your mortgage. In the long run - you should end up with very positive cash flow... even if, in the meantime, you had to replace the roof... paint... and carpet.. and fixtures. At that point - you had a bad tenant - it took you 6 months to evict - and he damaged the place... you're not very happy with that investment. BUT -- If you know that in the long run someone is going to pay off your mortgage and you're going to end up with positive cash flow... You'll fix the dump up - re-rent it - and keep on going. And that's my real point - and Mikes point... You must have a basic belief that you're on the right track and be willing to suffer sometimes for the bigger picture (the paid off mortgage or that trust in the long term chart!).

Stocks are very similar...


If you have one - and it goes south -- you're not very happy... but if you have 10 and some are doing fine - while others are sitting, but are okay - and one of them goes sideways... it's no biggie. There is no loss of capital unless you sell below your cost... so for the time being it's really only a mental challenge to trust your judgement as to why you bought in the first place.

I remind people time and again - when in doubt - go back and research your reasoning. Would you buy the stock again? Do you still think "X" is a leading brand - is it a good company - is the chart good - is the dividend good... Look at the details of the chart and see how many times it's gone UP and DOWN... Right now - you might be in one of those little down squiggles... If everything else is okay (no accounting issues - no legal issues etc) then instead of thinking about selling - maybe you should think about ADDING to your position and take advantage of the dummies that are selling!

[Flash68]

Originally Posted by GregWeld

To take a play on the "sold at a loss" theme that Mike just showed up in the previous post... Let's use McDonalds (MCD) as an example.

Here is a chart on Google Finance...

http://www.google.com/finance?q=NYSE:MCD


If you click on the "ALL" choice for the chart -- you'll see many "peaks" -- and also many "valleys". If you'd bought at one of the peaks --- pick any one of the MANY -- but in particular lets say you bought your first batch in 1999 and and sold in early 2003....

It is the lack of long term confidence that would have 'cause you to sell... and now look at how big of a mistake that would have been!

Not all stocks have a chart like this... but that is why you need to have real conviction in your choices TO START WITH... this is why you DO NOT buy some recommendation from the clerk at the grocery store when he gives you his "hot stock tip of the day". That will cost you money every time! Why? Because if it so much as hiccups -- you'll blow out of there at the very first chance and then you'll have taken a real loss.

If -- big IF -- you buy stocks in companies that you like - know - understand - are best of breed... then you'll buy MORE of them as the share price comes down and you'll lower your average cost and you'll sleep well at night with the understanding that in the long run - you'll come out a winner.

Investing -- that's the key term here -- takes time -- it takes commitment -- and most of all it takes some research and confidence that what you've bought is "good stuff".

Another example of this might be housing.

The people that bought houses at the peak -- then bailed or failed... they have a real loss... the guys buying them now... they might suffer for awhile.. they might even question why the hell did they do this... but you've got to believe that the prices will come back. When? Who knows? I have no clue. But I gotta believe that this is "temporary" - it's the scale of temporary vs. the longer term. We won't know what temporary was until we have a longer view, and that view needs time to develop. In the meantime - like a dividend paying stock - the renter of the house will pay towards the mortgage - and eventually you'll have a nice investment even if the price never recovers fully.

Good no-nonsense stuff as usually Greggers. Like I like to say... "the longer your holding period on something, the less perfect you have to be on the timing at acquisition." Applies to houses and stocks and most/all asset classes.

Originally Posted by glassman

Housing is strange. Their building by my office (Dublin, ca) 700 to800k but just over the hill (20 miles away) the community of Mountainhouse continues to take it in the shorts (mid 150's)....(talking residentual)

The ability to collect proper rent is in the simple of supply and demand. I just dont see the jobs in the area to substansiate postive cash flow.

I used to like the idea of property (its how my dad made is money in the 80's), but i'm liking stocks more and more.....

Thank you for the education i am continuing to learn reading this thread...

Those 20 miles from Dublin to Mtnhouse are WORLDS apart, as you likely know.

The bay area RE like most metro areas follow a basic value principle of concentric circles... the further away you get from the center (say, San Francisco in this instance) the less value you will see.

Don't give up on property just because of whatever the current situation is. The fundamentals have been the same since the beginning of time. Thorough analysis, good timing and discipline are your friends.

Right now the biggest problem is a lack of inventory in RE, and add the low interest rates and rising rents, and you have a perfect storm and a temporary seller's market around here. Crazy stuff.

[GregWeld]

Today will be one of those UGLY days... It's days like today that I look to ADD to my positions.... just nibble... Because a lot of the market will be looking to see what Apple says tomorrow (mostly about europe and china sales).

Here's an issue that people don't factor in --- McDonalds reports slightly lowered profit - why? A STRONG DOLLAR.... Is this a factor in their control? No.. but it will affect their bottom line. Do I worry about this kind of "miss"? No - it's a buying opportunity...

What will happen today is that everyone will look around and look to see what other companies trade overseas -- and start to assume (rightly?) that the strong dollar will be affecting the bottom lines of those companies... that and europe seems to be slipping ever farther down the slippery slope - which will also affect sales.

What do I do on days like this? I watch - buy a little - depending on whether I figure it might go down more etc.. (and it usually does after I buy).. or I just go out to "the shed" and work on some car stuff.

[GregWeld]

I forgot to finish my "thoughts" on the Ugly Day post.


Remember that as prices (share prices) come down - the YIELD (dividend) rises!


What I want to do is to make money on my money... and that's calculated as a PERCENTAGE -- so if a companies stock is $100 and pays a $10 dividend - that's 10% -- but if their stock falls to $90 then that same $10 dividend is 11.11%


The actual share price per hour - or per day - or this week... really is not as important to me -- AS LONG AS -- I think it will be higher than I paid some time in the future.


Averaging DOWN is when you own 100 shares of something at $50 and you buy 50 more at $45... it brings your average price per share down... This strategy works over time - if you're buying good stuff like we've discussed this last 180+ pages.

[GregWeld]

So here's what I did today ---

This is NOT a recommendation --- I'm just sharing what I did... don't read into it anything more than that.


I own 4000 McDonalds....

I bought 500 more this morning at $89.25

Then the price kept falling so I put in an order to buy 500 more at $88.25 (a full buck less than I'd just paid... that would bring my average down .50 per share)...

The price started to go back up so I changed my order to $88.50 and got the 500 shares at that price.

I'm just using this as an example of what I do... I actually EXPECT McDonalds to trade lower than this at some point... but since I don't know that - I'll just peck away since I think that these trades will be profitable on a capital basis at some point down the road.

My average cost on this trade is now $88.875

The 4000 I already owned have an average cost of $88.59...so I'll now have an average cost of $88.647

[Bucketlist2012]

Wake up to the shake up..

On days like this I just do other things.

I personally may not add anything, but I sure won't panic.

I will just fill my Day with other stuff to do...

[GregWeld]

Would be nice if the idiots in Europe could get their chit together.... What a bunch of moroons (pronounced mor roons)...

Let's have high taxes - free everything - early retirement - high debt.... and see how that works out. Oh..... wait.... The USA is trying to copy that very same failed strategy!

[Tony_SS]

McD's will do fine in the long run... they are one of the choosen ones.. bailed out by the Fed and given a waiver from Obamacare mandates.. I think you're safe with that one.