Investing 102

[GregWeld]

So here I am -- even on Xmas Eve - reading finance stuff.... and watching TV with the other eye -- and trying to keep Stella off my computer...



So... many times you've heard me state that money competes -- and asset classes compete for money -- and the same money moves around always in competition for trying to make the money "work". Gotta keep them employees cranking day and night, right?!?! No days off! No slackers! Some need retraining... some are doing fine - some are stellar...


This "comment" made me laugh --- because it's absolutely true!


"It has become clearer that 2013 for the U.S. equity markets was all about where can I place my money to make a decent return, and I think a lot of people ended up chasing the market and pushing it higher. It was the least worst house on a bad block," said Robert Pavlik, chief market strategist at Banyan Partners, contrasting the U.S. market to those in Asia, Europe and emerging markets.

"And, when interest rates started to tick up on Treasuries, equities seemed like the only game in town. That and the fact that the Fed continues to print money and provide a low cost of capital environment for corporate America," Pavlik added.




Money CHASES "return" ---- and that's what I've been saying about watching rising interest rates - because there's a "place" where rates on "X" will be good enough for people to sell "Y" and buy "X" and that's what you need to be heads up about. I don't know what that looks like -- but the "SMART MONEY" will chase returns. They have computer programs that do all the calculations -- and there's an axis point that causes the money to move from one type of asset to another -- with taxes etc factored in.

The thing is -- we look at TOTAL RETURN -- well --- okay -- but total return has to be GROWTH in our share price AND a dividend. Typically the lowest total return stocks will get hit first... because the "smart money" moves out to raise capital -- and then they buy whatever is the next thing. But then what happens is -- as the share prices go down --- what happens to the dividend??? The dividend is paid as a dollar amount -- it is NOT paid as a percentage.... so as the share price drops -- the PERCENTAGE that dividend represents goes UP... Making competition for the next new thing that WAS higher...

So guys like me BUY MORE when the price goes down -- we're not first on the spot -- ya got to pick your spots -- but you build a cash position and you take the opportunity when presented. So it looks like this ---- Let's just say Coke (KO) at current price pays 3% === and the price drops per share 10% --- now that dividend is 4% !! And so on.



To calculate the percentage of dividend a stock pays -- you divided the ANNUAL DIVIDEND by the current share price.


$1.00 annual dividend / share price of $10.00 = 10%

So if the share price dropped 10% to $9.00

$1.00 annual dividend / share price of $9.00 = 11%


Of course what TIME gives us is that perhaps you bought a year ago and the shares have already gained 10% in price -- so a small drop doesn't mean much -- it's still paying that dividend.... but if it drops 10 or 15% below your original cost - that's when you want to start to look at buying some more of it. You don't double down -- you just chip away. All the time making a BETTER % dividend on your new purchases.

[SSLance]

Originally Posted by toy71camaro

I had a much better feeling about Twitter's market than Facebook. But I didnt have the capital to gamble with. lol. I think twitter has a lot more "business" wise than most people realize. I've just started getting a presence on there as part of my Life Coach recommendations and the future of "social currency".

For the life of me, I can NOT figure out how these companies like facebook and twitter make the money that they do...

Granted, I run ad blockers on all of my PCs so I never see any pop up ads, and I don't facebook at all...but aren't both facebook and twitter free to use?

Where does all of the money come from?

[toy71camaro]

Originally Posted by SSLance

For the life of me, I can NOT figure out how these companies like facebook and twitter make the money that they do...

Granted, I run ad blockers on all of my PCs so I never see any pop up ads, and I don't facebook at all...but aren't both facebook and twitter free to use?

Where does all of the money come from?

There free to use, but they are a marketers dream. Companies pay money to place "posts" in YOUR news feed. Whether its twitter or facebook, doesnt really matter. They're just different styles of overall the same thing. Its the next age of "TV" commercials...

Reading a recent book about this, and this is how they broke it down....

Say your a company selling "widgets". And, you want to get your widgets out in the market. You spend $50k on making a commercial, you then spend $20k-$500k on getting that commercial on the air. The higher profile the "show" is that its placed on, the higher the cost (see super bowl = millions per commercial spot?). So, that Advert cost you $100k. Did it work? Dont know. Cant really confirm how many people seen it. How many of your target (say its a product geared towards 20-40year old females). Did sales go up? sure. But was it the Ad or coincidence? not really sure. So, whats next? another 100k for another commercial... VERY Expensive. Not sure how productive it is. And who even watches commercials anymore?

Now, take facebook/twitter. I create a Post/Article/Video, whatever you want to call it. FREE (essentially). I can make that Post for free. If its a "good" post, then people will engage with it (like it, share it, comment, etc). Facebook even tells you when you've got a "good" post and suggests you "boost" it (Pay money to reach a higher number of people). Now, when I boost a post on there I can be VERY specific at WHO sees my post. i can spend $500 and specifically reach 2 million 20-40yr old females in the lower 48 that would specifically be interested in my widget (just random figures here). I can also see a lot more info, like what time of day are best to post this, etc. You cant get that sort of reach with radio, TV, etc. Its a marketers dream. And businesses are realizing its money WELL spent. Which means profits up the wazoo for Faceybook and Twittster.

If you're selling something, where would you want to spend your advertising dollars?

[GregWeld]

Lance ---


Some of these companies like Twitter are very UNPROFITABLE... Twitter posted a loss of MINUS 38% operating margin...


But there's 500 MILLION TWEETS PER DAY.... of course part of the loss is that they need complex back end solutions to handle that volume (part of how I made a small fortune in 2010 was owning part of a company that provides solutions like they need).... and staffing ramp up. That has to come FIRST so for a while - they are losers..... but still have an immense audience of eyeballs -- and advertisers willing to pay for this MOBILE eyeball experience. The HOPE and GAMBLE is that they'll be able to monetize this at some point and become the next Google etc. They SHOULD have big margins if they can get people to pay for the access to eyeballs.


SOMETIMES the stock price is WAY WAY WAY ahead of the actual facts ---- thus anyone that's early is just gambling - which is what a buy of TWITTER (TWTR) is... but I'm okay with gambling a bit (I can afford to) and playing just a bit to see what the outcome is going to be.

I once had 750 "options" on Microsoft in 1986 at a cost basis of $32.25 per share --- at the time - the market was under $30.00 and I used to make fun of that at the time. That GREW just a bit --- as it turned into 216,000 shares at a cost of .11 cents per share... So sometimes a guy can hit a double or a triple or a 10 bagger. And that's what people BET on.

I don't think this is where people should INVEST -- as many of these run up and then blow up. These are gambling money plays and should be viewed as such. I just thought it would be "fun" to post about it here and I'll live or die in front of everyone here. UGH....

[glassman]

Man, some good stuff here the last couple of days.

Merry Christmas my fellow investors.....Cheers

[CRCRFT78]

So Christmas is here and I was wondering what to do with the kids gifts (money). I have 4 kids ranging in age between 2-11. I would like to teach them to save & invest at an early age to prepare them for their future and was looking for some opinions on options. I was thinking 4 investment accounts with Schwab with regular contributions for them. Should I invest in the same stocks for each or different holdings per account. I thought an investment account was a good idea so that they can use them for their own individual needs later on in life. Whether it be college, homes, weddings, etc. I would like some provisions so that they just couldn't go out and blow the money once they turn 18.

Any suggestions, what have some of you set up for your children? Any good books I can give to my kids to read on investing and saving?

[bdahlg68]

Do some research on 529's. They are great for college and if you save the history you can show how money grows in the market and just how important saving is. The money stays yours in case they get a scholarship because you don't need a college kid with some large sum of money to blow. They are different by state. Michigan's is good and I think Colorado as well. Otherwise I would say start gifting money but I don't think that's a good plan unless you are certain about responsibility and mega rich. Just my opinion though. Looking forward to others but that's what I'm doing for my 2.5 yr old.

[WSSix]

Utah's 529 is/was the best in the nation. I'd definitely research the different plans including your state's plan. You may get a tax break staying within state.

The other thing to keep in mind is that no one but you is going to pay for your retirement. Make sure you're setup first before you set them up for college. They will have many options available to themselves to pay for college.

[GregWeld]

First off -- the advice to take care of your retirement first - is really good advice... and that's mostly because of that old father time issue... the kids have 10 or 12 years before heading off to college - and retirement has a longer horizon (I'm guessing here) and lasts far longer.

Secondly -- While it's a nice thought to save for two college degrees - it's impossible for an ordinary person to do so. My own first hand experience tells me that. It's about 30 to 40 GRAND per year for all the tuition and books - and living expenses and travel costs..... PER KID. So you'd need 300 GRAND saved in the next 10 or 12 years... That's 25 GRAND saved per year beginning today. Depressing I know.

In state schools are less... Mine went out of state - why? Because the in state schools didn't accept them. Why? Because they're busy accepting out of state students that pay double or triple the tuition. Of all the parents I know - one kid went in state.

So here's where I'd be using the savings teaching.... Which is how we did it. I always taught them that it was okay to spend part of the dough -- as long as they saved at least half of it. It's kind of a reward for savings - that they also get to have some fun along the way. No different than the rest of us. It's human nature. We NEED to have our car parts etc -- but we also recognize the need to save/invest. So depending on how old the they are - you can also begging to teach them about investing. I started that when they were in high school.

I'd bought Apple (AAPL) stock for Alex -- 25 shares @ $85.00... by the time he finished college it was in the 300's... he was really interested in the market by then!!

I had set up accounts -- for each child... but before they turned 18 - I closed them and sucked the money back into my own accounts. That way they had no control over it. It was going to be ME paying for their college regardless... so the separate accounts were just used to show them about investing. When Alex graduated and remembered that "he" had 25 shares of Apple... he then wanted the money! After all -- it was "his". I just looked at him (as fathers do) and said -- Really? Well -- I'll give you that dough just as soon as you pay me back for your college expense. I mention this episode because that's what happens when you "give them" something. They can add - but they can't subtract.

If I was to do it over again --- I'd have pooled the money... so it "looks like" more to them. And it would have bought more of "X" investment.. and I'd have made sure they were donating half of everything they got to it. Some parents choose to incentivize by "matching" dollar for dollar anything the child saves. Sadly though - there's not much employment opportunity anymore for high school kids like there was when I grew up. We could work at any fast food joint - the car wash - the gas station etc. NOW? No way. Alex did yard work at an apartment complex I own (he worked for the management company so THEY were the boss not me).

An interesting side note there on INFLATION. Alex made $12 an hour. A friend said -- wow -- he can't even afford gas! To which I said -- well... When I was his age I made $1 an hour -- gas was .25 a gallon so I could buy 4 gallons of gas for an hours work. Alex makes $12 an hour and gas is $3 a gallon... so he can buy 4 gallons of gas for an hours worth of work.

What we all know really happens (THEN AND NOW) is that "stuff" goes UP faster than our wages -- so if a guy was making $12 an hour... and gas shoots up over $4 a gallon.... now that's inflation.

By the way..... We chose to send our kids to private Catholic school... so we've spent one hell of a lot of money on our kids education. If I'd have saved all that money - including the college tuition... and invested if for them instead. They'd never have to work a day in their lives.... Kidding here. But it's not far off the truth.

[GregWeld]

An interesting article - remember - articles are just opinions and should be used for information and "thought process" -- as the writer is no fortune teller.. in SeekingAlpha today about how Dividends help in a good market or bad. This has been the realization that took me about 23 years to come to grips with.... but the point of the article is that in a down market the dividends keep paying you something -- whereas the "growth only" strategy of investing pays you ZERO. They included a chart showing the past 8 DECADES for the S&P (a basket of stocks) showing that of the last 8 decades in 4 of them the dividend contributed more than the growth... think about that --- 4 decades --- decades are TEN YEAR periods. That's a long time. Now --- if you happen to hit retirement age during a down market (bear market) period -- some of these bear markets can carry of for quite some time! And in the meantime -- you're still depending on the cash flow from your investments to pay your bills. Thus -- I L O V E the dividend wether it's "trendy" investing or not.


OBVIOUSLY WHAT WE WANT IS TOTAL RETURN -- GROWTH and the INCOME (Dividend) -- that's a WINNING strategy!!