Investing 102

[toy71camaro]

When that big pop happens, It'll likely be time to get ride of the 0.025 shares I have of it. LOL.

Back in '98 or so I bought i think $25 or $50 in my personal account and my Roth. And havent touched it since. I think my purchase price was around $200.

I've been waiting for some big news to happen to get them back up to where they were for a short time ($700) to make it worthwhile to get rid of those minuscule shares, and put the $200 profit to work elsewhere. Tiny numbers, but hey, that was my first purchase I think. lol

[GregWeld]

Originally Posted by toy71camaro

When that big pop happens, It'll likely be time to get ride of the 0.025 shares I have of it. LOL.

Back in '98 or so I bought i think $25 or $50 in my personal account and my Roth. And havent touched it since. I think my purchase price was around $200.

I've been waiting for some big news to happen to get them back up to where they were for a short time ($700) to make it worthwhile to get rid of those minuscule shares, and put the $200 profit to work elsewhere. Tiny numbers, but hey, that was my first purchase I think. lol

I would't sell it --- why bother? It's in your account -- it's a GREAT company -- it costs you nothing to hold it. And now they're going to give you 700% more shares... and they raised their dividend payout by 8%... WTF is wrong with that.

Seriously -- I don't know how you could take $200 and do any better than have it in AAPL.

[GregWeld]

Since we're smack dab into high gear with EARNINGS season (happens every quarter)....


How many of you have come to the realization that EARNINGS MATTER when companies report.

Two things matter the most to your holdings -- EARNINGS and FORWARD GUIDANCE. In other words --- is the company growing (more sales) and better profit margins --- AND what they think they're going to do in the future. Miss earnings -- or give poopie forward guidance and they get taken to the woodshed.


This is where the P/E ratio comes in to play. P (price) to E (earnings)... P what the stock price is --- divided by E earnings.


When you have a HIGH P/E -- people are betting that the company will grow into the stock price... Own a high P/E company that misses -- or gives poopie forward guidance (or both) and it's Kattie bar the door.... the price comes down BIG TIME.

People ask me all the time about P/E. It's not a metric I use because for the most part the P/E's on the companies I own are "in line"... Since they're dividend paying companies - they're really not the big "growth" companies. Big growth companies are Amazon (AMZN) P/E 483 - Tesla (TSLA) P/E 0 because it has no earnings (I own it just because it's cars - and they're cool) - NetFlix (NFLX) P/E 125 etc

Versus -- Altria (MO) P/E 17 -- AT&T (T) P/E 10 -- British Petroleum Prudhoe Bay Trust (BPT) P/E 9.5

[glassman]

So, let's use "Tesla" for example, because their a publically traded company, do we know how long it will be before they have earnings? Are they sorta considered r&d (research and development) for now until we "know" when they will start posting earnings relative to production?

I'm glad you resaid what you did about earning p/e cause I'm just begining to grasp that mathematically.

[sik68]

Tesla has shown a profit (which would result in a Positive P/E ratio) in one or two quarters in the past, but they are intermittent. For a company that's drastically ramping up like Tesla, turning a profit really depends on when the big checks are being written.

[GregWeld]

Originally Posted by glassman

So, let's use "Tesla" for example, because their a publically traded company, do we know how long it will be before they have earnings? Are they sorta considered r&d (research and development) for now until we "know" when they will start posting earnings relative to production?

I'm glad you resaid what you did about earning p/e cause I'm just begining to grasp that mathematically.

To use Tesla as an example only - not a particular "stock" pick....



I bought Tesla (TSLA) more for "fun" than as an investment. While I HOPE that it will grow and prosper (I do have a quarter million dollar investment in it)... I don't expect it to be anything but VOLATILE. Big swings up and down -- because a name like this is MOMENTUM and NEWS driven. Bad news -- stock gets hammered -- Things going well -- the momentum investors jump in and drive it up (until they find a new name to jump on).


A "start up" company often is not expected to be profitable (WTF -- AMAZON HASN'T REALLY BEEN PROFITABLE IN 20 YEARS!). It's more about GROWTH -- FUTURE PROSPECTS... and blah blah blah. It's gambling pure and simple. You're gambling that the management can grow the company and finally make a profit. In the meantime - they must manage cash flow to expand - experiment - acquire - ramp up people and processes... so while FREE CASH FLOW might be fine -- that doesn't make them profitable. The cash flow is supporting the expenses to build a business.

Why people pay up for this kind of a name (pick one) is because they can return HUGE returns over time. Take Amazon -- which really isn't very profitable and trades at a P/E of almost 500 (their stock price is 500 times what they're earnings are).... the stock (different really than the company) has returned a 17,681% growth to an early investor. Pretty good gamble.

The quarterly reports are the best place to find the type of info you asked about. Or a guy can get in on the conference call - the numbers to call are always published usually easiest to find on the company website... You dial in - you can not interact. Companies are very skillful in managing what they say "going forward". They are best off to err on the low side of what they really think - so that they don't get into an investor lawsuit.

For instance - with Tesla (TSLA) they reported higher than forecasted sales numbers -- and have said that they expect a 55% sales increase..... and that CHINA and Europe are just huge untapped markets. So that's what is driving the stock price.

Now -- If you go back in this thread -- I've discussed stocks that are "priced for perfection" -- and a name like Tesla fits this to a T. They can not hiccup... they need to continue to not only forecast correctly -- they must EXCEED their forecasted numbers. If the do - they stock continues to be okay -- but hiccup and a guys gets cut in half before he can hit the sell button. It's gambling. Play with money you can afford to watch go up in smoke. And this can happen at any time! You can go along and be fat and happy -- and overnight you get your ass handed to you. And we're talking about any name that fits this type of "investment" --- Facebook -- Amazon --- Netflix --- Tesla --- They're fun while they're going UP -- but they can fall far faster than they go up. So be careful with this stuff.

[GregWeld]

This is truly sad..... Not hard to understand - but sad - because so many people will live really poorly in retirement IF they can retire at all.





Why do Americans have such a love-hate relationship with the stock market? Despite being proven, time and time again, as one of the best wealth generators in history, U.S. adults grow hot and cold about the market, embracing it as it fills their 401k plans with assets, but shunning and distrusting it at the first sign of risk.

The latter mindset is taking hold right now, according to a brand new survey from Bankrate.com Across all adult age levels, 73% of Americans say they are “not inclined” to invest in the stock market right now. That, despite low interest rates on cash and fixed income, and stock market returns exceeding 30% in 2013, Bankrate points out.

If you think that Americans are growing fickle about stocks because it’s a relative off year for equities, think again. In 2013, when the stock market soared, 76% of Americans said they were largely avoiding stocks, in a similar Bankrate study.

“Americans may be avoiding the buy-high, sell-low habit seen in previous market cycles, but only because they’re not buying at all,” notes Greg McBride, CFA, Bankrate.com’s chief financial analyst. “An overly conservative investment stance compounds the problem that so many Americans have of not saving enough for longer-range goals like retirement.”

[CamaroMike]

Everyone I talk to wants to spend it all and they want to spend it NOW! Its becoming very scarce to find people who actually save. There is so much stuff out there these days that people want! So many temptations! While they are surrounded with new flat screen TV's and the newest cell phones I will be picking up some free money from my dividends using my old (2 year old) cell phone that does the same thing.

[sik68]

Here is a relevant article posted on Forbes: Buffett's Bad Advice

The headline is obviously for click traffic, but he makes an interesting point that got me thinking. He argues that an index fund is NOT diversified, particularly in 'bubble phases', because high valuations in a particular sector skew the index away from representing the broader market.

He doesn't back this hypothesis with actual return scenarios, because he knows that he is just trying to stir the pot without backing anything up. It's pretty easy to see that over the long run, the S&P 500 tracks like the Russell 2000, tracks like the Wilshire 5000.

Granted, it's not the investing strategy of this thread, but index investing is another form of investing 101 that helps people grow their wealth to retire. I think he's doing a huge dis-service by scaring people away from even the most basic form of saving and earning compound interest. For some credibility, I wish he would have just said "buy an even broader index than the S&P if you're a risk averse investor" rather than spooking people away from Buffett's reasonable advice.

[GregWeld]

Here's my problem with an "index" fund.... The index is only a basket of names made up to "reflect" the particular sector a guy wants to invest in... let's say "financials" or "industrials" or "transportation". I have always advocated for small investors to invest in the companies and names they know and understand. And to buy "best of breed". But when you buy a basket of stocks -- you get just that - a basket. You get the good the bad and the ugly... and the ugly pulls down the performance of the good. So that gets you a basket of boring and I would ask you --- why bother? If you don't or can't figure out what the best of the best is in that sector -- then why invest in it if you don't even care to do a minimum of work.


If some of the companies that make up the index pay a dividend -- and many of the other names don't -- that just dilutes your dividend - because you have "X" amount of money invested but aren't getting much of a dividend --- compared to say -- the top company that pays a dividend.


Here's my bottom line opinion -- and this is for INVESTING 102.


If you have 100 grand - you probably don't own that many companies to start with --- 20 would be the max you should own... 20 names and that much to invest should get you well diversified -- with a dividend yield somewhere in the 4 to 5% range.

If you have 250K to 500K invested -- now you can start to put the bulk of your money into the above 20 or so names -- AND take some dough and add some "risk" assets.... in other words -- now you can put 10K EACH into some names like Tesla -- or NetFlix -- or <pick a name>. You can "afford" to take on some growth risk. If I had 250K --- I'd gamble with 50K max -- 500K and maybe I'd increase that t0 75K.

Once you get beyond these kinds of numbers to invest -- GD it! --- you'd better be real sharp about investments -- your returns - your risks - you should be into some real estate -- you should be taking an ACTIVE role in your money management. You can take on some higher paying (more risk) investments to get your returns up a bit since now you can afford to. You should have little debt - certainly shouldn't be making car payments or have ANY credit card debt.

Mutual Funds and Index Funds are a way for people to choose to NOT learn about investing - they're places for people to park money and forget about it - only to wake up 5 years later and realize they didn't do very well. They're just dumbed down "investments".

I just don't think that the guys that are reading this thread -- and trying to learn about investing from this thread - and then are finally branching out to read other stuff in order to learn more - "need" index funds in their accounts. The returns are just market returns without the dividend --- and if you're "only" getting a 2.5% dividend on the index fund -- and you could have bought the top name in that index and gotten 5% --- your total return is going to suck over time and that's not what we want.

For fun I went to Schwab and hit the research area -- they have a category for ETF's (exchange traded funds)... I chose LARGE VALUE - and then there's a button for ETF Select list - once you get there you can sort this -- so I sorted for highest dividend. The name comes up with (DIV) Global X SuperDividend.... it pays 6.08%

Here's the part I DO NOT LIKE -- they're only UP 7.59% in FIVE YEARS... THAT'S A HORRIBLE TOTAL RETURN.

If you just scroll down to their TOP TEN HOLDINGS -- you can now get the names that make up the fund. Check them out and buy the one or two that make sense. Bingo! LOL

Originally Posted by sik68

Here is a relevant article posted on Forbes: Buffett's Bad Advice

The headline is obviously for click traffic, but he makes an interesting point that got me thinking. He argues that an index fund is NOT diversified, particularly in 'bubble phases', because high valuations in a particular sector skew the index away from representing the broader market.

He doesn't back this hypothesis with actual return scenarios, because he knows that he is just trying to stir the pot without backing anything up. It's pretty easy to see that over the long run, the S&P 500 tracks like the Russell 2000, tracks like the Wilshire 5000.

Granted, it's not the investing strategy of this thread, but index investing is another form of investing 101 that helps people grow their wealth to retire. I think he's doing a huge dis-service by scaring people away from even the most basic form of saving and earning compound interest. For some credibility, I wish he would have just said "buy an even broader index than the S&P if you're a risk averse investor" rather than spooking people away from Buffett's reasonable advice.