Investing 102

[GregWeld]

Originally Posted by Sieg

Now I feel much better about the spare change order at $2.19 for 1K............

Well... this thread is all "theory" and ways to think about the market/investing. It's not the absolute "do this and don't do that" kind of thread...

And for people that want to play in the market I say go for it. I've done this for years so I understand it completely. I don't think there is a right way or a wrong way (well - yeah there is a wrong way) to try to make some money and each person has to find out what that is - what their risk tolerance is etc.

Along those lines -- my buddy wanted to get into the market - and we discussed all the things that we've discussed here.... and he can "take risk" no problem - so he says. The very first stock he buys is a splitter. LuLuLemon (LULU)... buys at $120 - and it splits 2:1 - and he's certain it's going to the moon from there... but instead it starts dropping... and it drops to $45 or so... and he's like a cat on speed over it. When it finally gets back to about 52 or 3 he sells it all...

The take away from that is he has now recognized something in himself that will stick with him -- his appetite for risk really wasn't what he thought it was.. so this was a cheap lesson for him. It will make him a better investor.

[Sieg]

What I've noticed about myself is that I tend to look at a risk like the Sprint buy as a gamble and challenge...........as to why it entices me to buy a stock like that I'm not sure as I DO NOT like to gamble in the traditional casino, card game, or sports fashion at all. I will wager on a game when my performance and skill is involved but don't really get a rush from it.

I don't consider myself lucky either which adds to "why the heck did I do that" factor. On a roulette wheel I've bet red 7 times in a row, switched to black 6 times and lost every time.

Help..............

[WSSix]

Well, I finally sat down and did some quick research on what companies I may be interested in. I tried to first come up with four different categories and companies within those categories that I use or like. I ended up blending some of them simply because I had no clue how they were officially listed. I chose petroleum/energy, utility, retail, and food. The retail and food ones got blended as you'll see. I haven't spent any money yet because I haven't opened the accounts etc. So these are just my choices of who I intend to invest in unless I can be convinced otherwise. I'm more than open to having my choices critiqued.

Petroleum- Chevron. High dividend and good growth over the last ten years. My first choice in gas for my vehicles is Chevron and Marathon. Marathon isn't doing so well stock wise though. I considered Exxon but their growth and dividend were less than Chevron.

Utility- Southern Company. Good dividend and good steady growth over the last ten years. They own Georgia Power and I'm biased towards all things Georgia. I considered Black Hills Energy(my current provider) and Con Ed based on Greg's recommendation. Southern Company has a slightly smaller dividend than Con Ed but more steady growth and again I'm biased so I like Southern Company.

Retail/Food- I'm in a tie right now between Walmart, Whole Foods, and CostCo. Walmart's dividend is nearly 100% higher than Whole Foods but their growth is flat. I'm aware they are trying to get into just the grocery store market and I think they will do well there. However, Whole Foods has tremendous growth over the last ten years. I also really like them even though I do not shop there. I do not foresee their popularity waning any time soon. If anything, I believe more people are going to shop there and the entire healthy/fresher food area of the market is going to grow. I also really like how they treat their employees. CostCo is another choice that has good dividend, good growth, and treats their employees in an excellent manner. So I'm really kind of torn between these three and am unsure which would be a better/wiser choice.

I looked into the soft drink segment as well because no matter how much health people declare soft drinks to be terrible for us, I doubt they will ever slow down sales enough to hurt. So again, my Georgia and Southern bias has stepped in an I'm looking at the Coca Cola Company(not Coke Bottling Company) and Dr Pepper. You can't get any more Southern than those two unless RC Cola can be found somewhere near you. It's basically a tie between the two with Coca Cola having a higher dividend and more history. So I think I'll lean towards Coca Cola. The only negative I see against it is that is costs a lot more than Dr Pepper. Does that really matter though? The dividends are paid out based on dollar amount not shares so unless the stock splits, cost shouldn't matter, correct?

For food, I wanted either Subway or Chic-fil-a but both are private so I looked at McDonal's and YUM Brands(Taco Bell etc). I'm going with McDonald's. Very high dividend, great growth, Greg's endorsement haha, and just like with soft drinks, people aren't going to stop slowing down their consumption of that stuff any time soon I feel.

So, how do those look to people in the know? Any suggestions or critiques are welcome like I said. I'm trying to learn and get involved but at the same time keep it simple.

I think I should also point out that I do own Halliburton stock. I work there and have money in the ESPP. I'm not including them though simply because I'm putting my money into them regardless since it's through the ESPP which is discounted. However, because I do own them I am not considering any of my competitors though there are some good choices in that segment. Schlumberger, Baker Hughes, and Weatherford to name the biggest ones. For those that don't know, we are service companies within the petroleum market. We are not petroleum companies. We are contracted with the petroleum companies like Chevron, Shell, etc. So I guess you could call it a subcategory of the petroleum market.

Thanks

[WSSix]

Well crap. Right after I posted I thought of another petroleum company to look into and now I am torn slightly. Occidental Petroleum has tremendous 10 year growth compared to Chevron but a much lower dividend. So which should I really pay attention to, dividend or growth? I'm leaning towards dividend because that's paid out and some what guaranteed where as growth may not be. Is that an ok way to look at it or not?

Conoco Philips is also on par with Chevron but their dividend is slightly lower so between those two, I choose Chevron.

[GregWeld]

Trey ---

Your thought process is right on the money... and that is really what investing is all about. NOBODY can pick the exact right company or exactly perfect sector/s to invest in. The key is to do exactly what you're doing.... All good names that you understand - you've done the comps - and now the only choice is which is the right one for YOU. One guy buys Exxon - the other guy buys Shell... if all things are fairly equal - you go with the one where you shop and do business with. Because in the end -- you're an OWNER of that company. You bought a piece of it. So if you're going to buy a company - shouldn't you buy the one you like personally? SIMPLE AS THAT.

What that does is gives you a peace of mind... and you're not freaking out over every little hiccup in the stock market.

I just bought Conoco (COP) - an initial smallish amount of shares. I'm a Chevron customer... and I might buy some of them as well.

Now to answer the growth and dividend question. The key metric for me is the TOTAL RETURN... and you can find those numbers for comparison sake. Usually for the last 1-3-and 5 year period.

So let's do a total return FIVE YEAR comp:

Chevron -- 80.9%

Conoco -- 27.3%

Exxon -- 29.7%

++++++++

Whole Foods -- 54.8% --- but the THREE YEAR is 642.1%

Costco -- 61.1%

Walmart -- 44.2%

++++++++

Coke -- 65.4%

Dr Pepper/Snapple -- no 5 year since it's a merger -- but 3 year is 137.6%

++++++++

Yum brands -- 122.4%

McDonalds -- 163.2%



Really - could you have gone very far wrong with ANY OF THESE?? With the exception of the Chevron where you'd be a lot farther ahead -- they would have all been good investments.

[GregWeld]

I forgot to include Occidental Petroleum!! Five year total return 110.1%


I'll add this information about what the TOTAL RETURN calculation is based on.....


The Total Return is the rate of return representing the price appreciation of a stock with cash dividends reinvested on the pay date for the most recent 1, 3 and 5 fiscal years.

[WSSix]

Thanks for checking out my thought process Greg. That's ultimately what I'm trying to learn as well. I'm not in this to get rich quick. I just want to hopefully make sound choices and know why they are sound.

Where can you find the total return numbers at on Google Finance or is it listed elsewhere? I used them for checking the numbers but didn't see a total return listed. I simply got my numbers by clicking on ten year and then looking at the dollar value and percentage in green, hopefully, listed next to the date range.

How important do you think having a history is in your opinion? Take Dr Pepper/Snapple for instance. It's only been around for 3 years but has shown good gains. Would lack of a history be something you'd see as a reason to maybe reconsider a particular stock? I'm guessing this requires more research into maybe how the company is structured and its business model or goals before anything more than a WAG can be given.

Thanks

[GregWeld]

Total return numbers came from Schwab website. I don't know if you can get to them without having an account.

I think the Google site % is share price gain only but I'm not sure. I do all the research using Schwab website since it's easy and gives me all the info I can use.

I've been writing in a manor that will just get people going and to show thought process and what you're doing is exactly what I've been preaching. Pick some sectors - compare some stocks - then go with what you feel. It's easy for someone else to talk you into buying this or that -- but that's not comfortable when they're going down or sideways. The person that did the research - can go back and reassure themselves why they picked what they did... and they can trust their own instincts.

Will they always be right - hell no - will they always pick the name with the best return - hell no.... but just looking at those stocks above should be enough to show anyone - that there is real power in those stocks... 40 - 50 - 60% returns... are nothing to sneeze at!


I think HISTORY is a great guide - not the only guide - but it's a very good predictor of future behavior. I can't see into the future - but a stocks history of good steady growth and dividend increases etc -- I can't fight that trend. Is it 100% right -- nope.... but it works until someone shows me a better way.

LUCK also plays a large part in investing. So if you're lucky - you can pick a name - and hit 400% returns... or more... but trust me when I tell you that when you're NOT lucky -- it sucks. Money is too hard to come by to watch it go down the drain.

Now -- Dr Pepper and Snapple are hardly new names or brands. The companies have a far longer history than the 3 years since the merger - and obviously they're having some success. But again -- I LIVE off my dividends and bond income - so I tend to pick "for certain" names over something else... but I'm OLD - and RETIRED - and have a big appetite for cash flow... I don't like to second guess myself - so if "I" am picking - I'll give up the "perfect chart" and a 1% difference in dividend payout - in order to just be happy and content. So even if Hansen Soda is going gangbusters - I'll buy Coke over it because I think I have some certainty.. So that's just the way I think. Remember too -- that I think differently NOW than I did 20 years ago -- and my personal situation is far far different than the 99%... So just keep that in mind. My thought process is probably more conservative than someone that's trying to hit a double - and has 30 years to go before they retire. But unless they have lady luck on their side -- my "method" is going to kick their ass.

[Sieg]

Originally Posted by GregWeld

I don't have the next hot opportunity....



I've hit a couple in the past... but don't have any in the works now. In fact, I quit even looking for them. I'm too old.

That's OK, I don't have the 3 or 4 or 5 million either.

Again thanks for creating this thread and generously sharing your knowledge, one of the most valuable threads I've read in years.

[WSSix]

Well, I intend on getting a Schwab account since I found their website easy to use. So I'll be sure to look up the info there. To me, and with my expectations, that's a better way to view a stock. After all, growth and payouts(dividend) create value/money which is what I'm trying to do. I'm tired of my money earning 0.crap in a money market account. I really like the way you approach stocks and investing Greg. It's easy and it produces results over the long run. Thank you for taking the time to educate all of us. If we ever meet and I hope we do as I really want to attend some of these events, dinner's on me.

Thanks