Investing 102

[SSLance]

Originally Posted by GregWeld

I'd be all over it. But keep it real. Only money you can truly afford to play with.


In 2004 I invested in a start up. That $385,000 returned $20M in 2010. So it's okay to take on risk if the rest of your life is good to go.

Well, my brokerage house doesn't have access to the pre-IPO shares, so it looks like I'll have to open an account with Level3 to get any of the pre release shares or just buy it on the open if I want.

I still haven't decided what to do...

[GregWeld]

Originally Posted by SSLance

Well, my brokerage house doesn't have access to the pre-IPO shares, so it looks like I'll have to open an account with Level3 to get any of the pre release shares or just buy it on the open if I want.

I still haven't decided what to do...

Typically, in order for any brokerage to offer IPO's you have to be a pretty big customer. Perks like that usually start when your account is 10MM plus.

[GregWeld]

Home sales info just came out this morning and they're UP smartly.... even though there is some "moderation" in housing price RISES... and that's because the inventory is up.

I put this house up for sale the middle of May and it sold in TWO HOURS for almost full price... and the only item I had to fix on the inspection was to have the A/C serviced. The buyer is all cash - no contingencies. This seems to be the "norm" according to my two buddies that are agents. I only mention this because of the real estate connection.

So what?

Well... to me - it sends up the old interest rate balloon. When people are borrowing - then interest rates TEND to rise with demand. Yet - we still have the federal government pledging to keep rates low.. We'll see how that plays out because nobody really knows.

In the meantime the "market" seems to be just going up day after day. Yipppeeee. BUT -- I'll remind everyone -- the market doesn't go straight up day after day forever. So remember these fantastic days when the market turns against us.

Personally I'm all in.... I have the lowest cash positions that I've had in a number of years actually. And for now - that's worked out really well. There's an age old saying - "don't fight the fed". Everyone I talk to says their business is MUCH better... that they learned A LOT about business and managing their overhead etc during the downturn - and that they intend to keep their fixed costs in check and increase their profit. But more importantly - they learned the value of having low debt. That has to be good for the country in general.

[GregWeld]

Originally Posted by SSLance

Well, my brokerage house doesn't have access to the pre-IPO shares, so it looks like I'll have to open an account with Level3 to get any of the pre release shares or just buy it on the open if I want.

I still haven't decided what to do...

GO PRO is selling a million cameras PER QUARTER....

Here's where I'd be concerned regardless of who or what company we are talking about... doesn't make any difference if it's an IPO or a big company like APPLE.

Every QUARTER a company reports it's earnings... that's every three months guys! And every three months - they have to meet or beat the street. Sales - profits - unit sales - and on and on... have to be growing. IF not - the stock gets crushed. Never forget this key metric. The entire market is all about growth and growth gets rewarded - misses get clobbered.


So regardless of whether or not a company is selling cameras or cell phones or bread... Your investment needs to be based on the future - and what the market thinks they'll be able to do going forward. End of story.

[CamaroMike]

I recently started an account for long term growth. Can you guys give me some input on if its a good idea and if I am diverse enough?

Im currently at 4 companies $1k basis in each company. I plan on adding at $1k increments until I hit 15-20 companies and reinvest all my dividends. Of course if there are any opportunites within I will add/subtract accordingly to how I feel about how that company is doing.

Currently with Ford, KMP, Att, Home Depot. Am I on the right path with diversity and my slow way of getting this account rolling for some big long term gains?

[GregWeld]

Originally Posted by CamaroMike

I recently started an account for long term growth. Can you guys give me some input on if its a good idea and if I am diverse enough?

Im currently at 4 companies $1k basis in each company. I plan on adding at $1k increments until I hit 15-20 companies and reinvest all my dividends. Of course if there are any opportunites within I will add/subtract accordingly to how I feel about how that company is doing.

Currently with Ford, KMP, Att, Home Depot. Am I on the right path with diversity and my slow way of getting this account rolling for some big long term gains?

You are doing quite well! Congrats!!



Remember that your "big long term gains" are going to come with long time lines... Money doubles about every 7 to 10 years. That's IF you stay invested and you reinvest the dividends. It's all about COMPOUNDING.... 2 becomes 4 - 4 becomes 8 - 8 becomes 16 - 16 becomes 32 - 32 becomes 64....

Note how the last "doubling" is also the biggest?!?!?! 64 becomes 128

That's how ordinary earners become wealthy retirees. It's not rocket science. It's common thinking - Saving first versus pissing away every dime... and avoiding debt on high interest rate stuff like 20% credit cards.

I was discussing retirement and spending with a retired buddy yesterday. This guy never made 50K a year in his life -- and he's a millionaire just in stocks - not counting his house. They're thinking about selling the current house (paid 49K - selling for 850K and has been paid off for at least 10 years) and moving to a lower cost - less stressful area. The house they're looking at is twice as nice and half the cost. So their lifestyle will improve and they'll pocket some cash which will create even more retirement income. His biggest worry.... where they're going to take their Airstream next.

His biggest mistake -- investing in 10 year treasury bonds instead of stocks. He made the switch to stocks with my help about 15 years ago. He'd have 3 times the net worth now - if he'd have bought stocks 40 years ago instead of bonds... but regardless of that "mistake" the point is that he's pretty well set.

[CamaroMike]

Originally Posted by GregWeld

You are doing quite well! Congrats!!



Remember that your "big long term gains" are going to come with long time lines... Money doubles about every 7 to 10 years. That's IF you stay invested and you reinvest the dividends. It's all about COMPOUNDING.... 2 becomes 4 - 4 becomes 8 - 8 becomes 16 - 16 becomes 32 - 32 becomes 64....

Note how the last "doubling" is also the biggest?!?!?! 64 becomes 128

That's how ordinary earners become wealthy retirees. It's not rocket science. It's common thinking - Saving first versus pissing away every dime... and avoiding debt on high interest rate stuff like 20% credit cards.

I was discussing retirement and spending with a retired buddy yesterday. This guy never made 50K a year in his life -- and he's a millionaire just in stocks - not counting his house. They're thinking about selling the current house (paid 49K - selling for 850K and has been paid off for at least 10 years) and moving to a lower cost - less stressful area. The house they're looking at is twice as nice and half the cost. So their lifestyle will improve and they'll pocket some cash which will create even more retirement income. His biggest worry.... where they're going to take their Airstream next.

His biggest mistake -- investing in 10 year treasury bonds instead of stocks. He made the switch to stocks with my help about 15 years ago. He'd have 3 times the net worth now - if he'd have bought stocks 40 years ago instead of bonds... but regardless of that "mistake" the point is that he's pretty well set.

Thanks! Thats very inspiring considering I have time on my side . Compunding is awesome when it works in your own favor! Im not a big spender either so that helps quite a bit.

My next question is when interest rates rise where do I put my new investment money? Do I keep going into stocks or diversify a little more with CD's or something since they should be paying with higher interest rates?

[GregWeld]

Originally Posted by CamaroMike

Thanks! Thats very inspiring considering I have time on my side . Compunding is awesome when it works in your own favor! Im not a big spender either so that helps quite a bit.

My next question is when interest rates rise where do I put my new investment money? Do I keep going into stocks or diversify a little more with CD's or something since they should be paying with higher interest rates?

Don't try to play that game. You'll be in the wrong side of that trade every time. It's nearly impossible to "time" the market - which includes Bonds.

Historical data will show you that the stock market is the best money maker/compounder over every other investment. Bonds only have capital growth when rates are going DOWN and your interest rate is higher. The problem with that strategy is that you've lost the compounding affect of dividend reinvestment. If you go back thru the thread -- you'll read about dividend reinvesting and why it works. You get the dividend every three months... and every three months you buy shares at whatever price they happen to be that day. What happens with that is they buy MORE shares at lower prices and fewer when they price is high... the more shares you own the more dividend is paid buying ever more shares which pay more and more dividend.

A bond pays a flat rate of return and is only going to give you your capital back dollar for dollar - there is no reinvestment option. So while you hide behind the 'safety' of knowing you'll get back your initial investment.... you've lost out on the capital growth.

Many companies RAISE their dividend payouts. When that happens - the stock you bought for $10 that paid 4% -- is now getting 6%.... and the $10 is now trading for $13.

This is how Warren Buffet gets his entire initial investment in Coke (KO) back in dividend EVERY YEAR.

You have Home Depot (HD).... in 2004 they paid 8.5 cents per share per quarter and the stock price was $37.... today the share price is $80 and they're paying .47 cents per quarter. Compare that to a 10 year bond where you got 4% per year and got your money back after 10 years.... UGH.

Just keep putting money in the market - good market or bad market... reinvest the dividends.... stay with being diversified. Keep it real simple... and when you get scared... refer to a 10 year chart - ignore the little ups and downs (the squiggles in the line) and see that the chart is lower on your left and higher on your right despite all the little steps along the way.

[CamaroMike]

Wow, thats really simple!!! LOL! I always make things more complicated than they really are. Thanks again Greg!

[rocketrod]

Here is a simple example NOT a recommendation to buy.

I bought MO (now called Altria) in Jan 2008. Shortly afterwards they spun off PM (Phillip Morris) with a special dividend so for each share of MO I owned, I received a share of PM.

MO stock price has since appreciated 80%, and in addition I receive a dividend, which has increased from 5.27% to 8.72% on an annual basis.

PM stock price has since appreciated 90%, and in addition I receive a dividend, which has increased from 4.17% to 7.61% on an annual basis.

The investment, with dividends, has more than doubled in 6.5 years.

In hindsight, my only regret is not reinvesting my dividends from the beginning as my returns would have been even better. I have since started re-investing my dividends.