Investing 102

[dhutton]

Originally Posted by GregWeld

You guys that looked around your neighborhoods and decided that Home Depot (HD) was someone you'd like to invest with.... certainly got it right. It's up what ?? Like $4 in the last two days?


I've missed two things that if I'd have followed my gut hunch --- I "wanted to" short the housing stocks just prior to the crash --- and I wanted to buy housing stocks last year (I have three buddies in the biz and they all saw good things coming). I did neither.

Home Depot and Lowes are both "housing proxies".... * Newbs * a "proxy" is a way of buying a company (stock) that is a direct beneficiary of an industry etc without actually picking a name (stock) in the industry. Think of it like buying Goodyear if you thought "car sales" were going up. You wouldn't have to pick Ford or Chevy.

HD is one of the stocks I purchased way back in Jan/12 when this thread inspired me to get off my butt. I purchased it in my Schwab account (that I opened because of this thread) and also in my 401k Brokerage Link account (that I also opened because of this thread). It is up 85% since my purchase. This thread is pure win. Thanks Greg. Your advice to buy what you know and like was right on the mark.

Don

[GregWeld]

^^^^^^^^^ AWESOME!!!



Investing CORRECTLY -- really is pretty damn simple.


It's when someone tries to get fancy that it fails.

[96z28ss]

my ford "F" is up 49% since I bought a year ago this May.

This is the best thread on the internet.

[GregWeld]

Originally Posted by dhutton

HD is one of the stocks I purchased way back in Jan/12 when this thread inspired me to get off my butt. I purchased it in my Schwab account (that I opened because of this thread) and also in my 401k Brokerage Link account (that I also opened because of this thread). It is up 85% since my purchase. This thread is pure win. Thanks Greg. Your advice to buy what you know and like was right on the mark.

Don

Because this thread is read by many -- I MUST comment that this is not a good habit to get into. Remember to look at your "investments" as a whole... it is, after all, ALL your money in the end. Therefore.... a well diversified portfolio would/should be a sum of all those investments. It's better to buy DIFFERENT names for each account -- and then still use the "5% rule"... to make sure you're not loaded up on any one investment.

I know this is hard to do ---- and it's far too easy to ignore these simple rules when things are humming along nicely (as they have been) ---- but these rules are more to protect you when the shizzle isn't running in your favor. Trust me when I tell you -- THEN you will be a believer in diversity --- and in not loading up the truck with "what was" working.

When I'm buying shares -- I use a DOLLAR amount -- and then round off... but I take into account my total dollar amount invested...... Where I diverge from that is actual real estate. I treat real estate as separate investments and just put in what I'm comfortable with --- and in my case --- usually enough so that I have a controlling interest as an investor (the management group actually has 49% usually -- but I want to be the largest investor on the other side).

I lump BONDS and STOCKS as a total..... so I have "X" amount invested... and use that to control the diversity as well as the 5% rule.

[dhutton]

Originally Posted by GregWeld

Because this thread is read by many -- I MUST comment that this is not a good habit to get into. Remember to look at your "investments" as a whole... it is, after all, ALL your money in the end. Therefore.... a well diversified portfolio would/should be a sum of all those investments. It's better to buy DIFFERENT names for each account -- and then still use the "5% rule"... to make sure you're not loaded up on any one investment.

I know this is hard to do ---- and it's far too easy to ignore these simple rules when things are humming along nicely (as they have been) ---- but these rules are more to protect you when the shizzle isn't running in your favor. Trust me when I tell you -- THEN you will be a believer in diversity --- and in not loading up the truck with "what was" working.

When I'm buying shares -- I use a DOLLAR amount -- and then round off... but I take into account my total dollar amount invested...... Where I diverge from that is actual real estate. I treat real estate as separate investments and just put in what I'm comfortable with --- and in my case --- usually enough so that I have a controlling interest as an investor (the management group actually has 49% usually -- but I want to be the largest investor on the other side).

I lump BONDS and STOCKS as a total..... so I have "X" amount invested... and use that to control the diversity as well as the 5% rule.

HD is not a major portion of either of my accounts. I think it represents roughly 10% of each account since I also took your advice regarding diversification. However, even then it is nice to see these kinds of returns on one or two holdings. It has helped cover a couple of my purchases that have not done as well.

Don

[GregWeld]

As long as we're on this subject --- I'd add that what you buy in which type of account is really pretty important.

Some things to think about when selecting.


IRA/ROTH etc --- what you put in here DEPENDS on your timeframe til retirement. Obviously if you have a long time -- say more than 15 years til retirement... then I'd personally select things that are more GROWTH oriented.


If it's money in a regular account --- and it's money that may or may not be tapped in to from time to time..... THEN I'd buy more steady eddies for that account.... because I might need the money when things are down. So the Cokes --- and that sort of name would be in my normal accounts.


A couple reasons here.... again --- just some food for thought. DIVIDENDS are taxable.... and GAINS aren't UNTIL YOU TAKE THEM. So in a normal account -- your money might DOUBLE over 10 years -- but you haven't been paying tax on that and won't until you sell. YOU WILL pay tax on the dividends even if you're having them re-invested.... at 20%. So you get 2K in dividends in that normal account and you're out of pocket $400 come tax day.


Now -- all of this DEPENDS --- like most things -- because nobody is doing or should be doing - what someone else is. It all has to be tailored to what your needs and goals are and your tax and cash flow situation is. I have NOTHING in IRA/401's -- I sold them out years ago because I had no need for them. I do still own an apartment house inside of an IRA -- and it's nothing but a PITA and is taxed as well! But that's a mistake on my part and I now can't seem to get out of it so it is what it is.

[GregWeld]

I just have to do one more post today....



I was just poking around and noticed something that, personally, I think is incredibly important to "investing".


Check out WALMARTS (WMT) 5 year chart on Google Finance.....


Now -- What I want people to really pay attention to is at the end of 2008 -- 5 years ago -- WMT paid a .24 cent per quarter dividend.... Yeah - WMT sucked wind for 3 or 4 years (as share price goes).... but -- the BIG BUTT -- they now have almost doubled the dividend to .47 cents per share per quarter.

Think about that for just a minute --- have ANY OF YOU gotten a 100% increase in your pay in the last 5 years???

This is what I'm talking about when I say -- you get paid to wait.... and that you don't have to be some miracle stock picker to make money in the market LONG TERM.

Forget the share price growth --- you've doubled your cash flow even if the share price just stayed flat!!! What's wrong with that scenario??

[GregWeld]

Today is what I was waiting for. Not a big sell off but buying down a dollar here and there.... Adding to positions already established. Gotta love it!

[Steve_O]

Greg,

Re: Diversification, a google search reveals 10 'sectors' (investment sectors...).

Are there some sectors you might favor? Sectors to avoid? I'm about 15 years away from retirement if that factors in.

Is there a rule of thumb about spreading risk? One stock of each sector before 2 of any one sector?

Sorry if this has been covered, I'm up to about page 75 in the thread and
had not seen this question.

Battling 'analysis paralysis' but I just opened a Schwab account, so I'm close to making some moves,

Thanks for the info and the motivation!

Steve O

[GregWeld]

Originally Posted by Steve_O

Greg,

Re: Diversification, a google search reveals 10 'sectors' (investment sectors...).

Are there some sectors you might favor? Sectors to avoid? I'm about 15 years away from retirement if that factors in.

Is there a rule of thumb about spreading risk? One stock of each sector before 2 of any one sector?

Sorry if this has been covered, I'm up to about page 75 in the thread and
had not seen this question.

Battling 'analysis paralysis' but I just opened a Schwab account, so I'm close to making some moves,

Thanks for the info and the motivation!

Steve O

Excellent questions!!!



Okay -- I'll try to keep this simple (the market is anything but!)....

Diversification is based on how much you really have to invest -- time horizon -- adversity to loss of capital etc. It's pretty dang hard for a guy with 5 grand to invest - to get much diversification.... at 10 grand a guy could buy 10 stocks - 1 grand each. I personally don't see any need for more than 20 stocks - regardless of how much money you have... 20 stocks will keep you in the 5% rule. More than that is just kind of a waste of effort and you loose track of what you own.

SECTORS are a different story. Sectors tend to go in ROTATION.... one sector can be a looser in an up market -- as investors roll out of that sector and invest in another sector. So just to have every sector covered.... is probably not a good strategy.

If you read this thread --- I'm personally more about owning the best of the breed in the field that you're going buy in -- and even more about owning names that you know and understand... by understand - what I'm saying is places you shop - places you eat - places that you buy from - in other words - something that you personally can look around and say -- I like this dump - and the parking lot is full - and the merchandise is good and these places seem to be well run. Whatever "these places" are...


The reason for that is because I believe that it's important to hold and invest more when things are crappy. If you can look around and trust the business you've invested in - then you'll tend not to panic and sell just because the share price isn't so hot for a year or two. And if you like the company - then you might feel comfortable adding to your position when things aren't so hot - and that's where real investors make their money.


SO -- make a list of places you'd like to own.... Just for fun - let's say
Home Depot
Ford
McDonalds
WalMart


Okay -- then we look and say -- you have THREE retailers --- but break it down more and you have FOOD -- General merchandise -- Home building supplies... and a manufacturer (Ford). I don't really see a problem in owning those stocks even though they're not diversified by "sector".

Now --- I like to own some OIL.... whether or not that's pipelines -- retailers - drillers - refiners.... there's so many kinds and types -- but again -- never buy something you know nothing about. I happen to always buy Chevron... I like their product - I see their stations -- I can sleep at night owning it. Maybe you're a Conoco guy... but you see where I'm going.

I don't own sectors I own COMPANIES that I like and can live with and understand -- and that pay me to own them (dividends) -- In other words -- they like to share their profits with me.


So the short answer is --- you don't want to be in all retail -- or all banking -- or all housing.... BUT -- you do want to be in great companies that pay you to own them and that you love.

Do that --- and you'll be happy and successful over time. Why own something in a "sector" you don't know a damn thing about -- just for the sake of being diversified.

So here's something else ------- I don't smoke or drink ------ But I love cigarette and booze stocks... because people buy them in an up economy or a down economy... even if a guy is laid off - he's still puffing away... While I might hate that and wish he'd quit.... he's not going to -- and I'm going to make money off that. Can't help him - might as well help myself. They're called SIN STOCKS.... don't overlook them.

I used to own AT&T and VERIZON -- then I said --- why bother -- AT&T is who I use - so that's the one I own. Nothing wrong with either one of them -- but I'm a customer of AT&T so they might as well pay me back once a quarter with a nice dividend.


Hope that helps.


Take you a few nights -- but go back and read from the beginning.....