Investing 102

[GregWeld]

Originally Posted by 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.

And it truly is just that Fn simple. It's when people try to get cute that it goes all wrong.

Simple ='s Great companies, a little diversity, reinvest the dividend, don't try to get all excited about the CURRENT value... You must trust Father Time. That all works when you stick to basics. When you start to loose your ass is when you try to game the IPO market -- or buy the "next hot stock" the traders on TV are talking about.... or you buy companies you know absolutely nothing about.

The other thing that works over time - is real estate that is RENTAL... not your own house (that is NOT an investment nor is it the piggy bank!). Having someone else make a mortgage payment for you --- so they're paying your loan down -- and the house or apartments go up in value at the same time over a LONG period of time. That's a winning strategy.

Getting into some cockamamy scheme your buddy just got into.... that's how you end up having nothing to show for your years of labor. You'll never find rich people that invest that way. EVER. You'll find SALESMAN on TV trying to get rich selling you their book about how they got rich (if they're rich... why are they on TV trying to sell you something?).

[rocketrod]

Originally Posted by GregWeld

.......
You'll find SALESMAN on TV trying to get rich selling you their book about how they got rich (if they're rich... why are they on TV trying to sell you something?).

Exactly....

[WSSix]

Originally Posted by GregWeld

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.

This is what happened to Whole Foods. You can even pull up the chart and see the very day this occurred. I feel it's a result of the traders not liking what they saw versus a fundamental change in the business. I'm confident that they will rebound and learn to better compete against the new companies that are slowly expanding and becoming more of a competitor to them. I'm in this for the long haul so I'm not worried. Now, if they don't turn it around and continue to lose out, I'll reevaluate my position. For now though, I'll hold tight and see.

[GregWeld]

Originally Posted by WSSix

This is what happened to Whole Foods. You can even pull up the chart and see the very day this occurred. I feel it's a result of the traders not liking what they saw versus a fundamental change in the business. I'm confident that they will rebound and learn to better compete against the new companies that are slowly expanding and becoming more of a competitor to them. I'm in this for the long haul so I'm not worried. Now, if they don't turn it around and continue to lose out, I'll reevaluate my position. For now though, I'll hold tight and see.

Tough call there Trey! Whole Foods (WFM) is in a very competitive space and margins for grocery stores are tighter than a frogs ass (water tight!). I think what is happening with this phenomena is that the other markets are waking up to the concept of better quality and organic... and then the margins WFM was able to make are going to be squeezed. At the end of the day -- while consumers will win -- the market only wants to see profits and growth.

My wife shops there... but I won't because I feel like I'm paying way too much when I shell out $300 for 3 bags of food.... and I'm just not the fussy and don't care about "organic" or not. That's a personal issue for sure.... but I think you have to have a pretty healthy budget (is that an oxymoron?) to shop there. This was a stock I owned early on -- but sold when I realized that I wasn't shopping there because of the above and thought -- WTF!?! If I feel that way - maybe others do to!

I still LOVE their stores! Clean - great vegetables - nice displays... but I also have to understand "Wall Street" and what it is they reward, or not.

In this case -- WALL STREET can get it real wrong -- and a great buying opportunity can present itself when others fear and doubt cause selling --- and then the company (any company) comes roaring back and proves the street wrong! I hope for your sake this is the case at WFM. The honeymoon period ended and now they have to show they can maintain sales growth and margins.

We're not trying to discuss the individual merits of each and every investment - but I felt this is worth discussing for 102 because it involves EXPECTATIONS and What the Street wants -- vs -- what we'd like because we like a particular company.

Now -- this is also called a "reset" on The Street.... where expectations are reset. This is where P/E comes into play... a metric that I typically discount because it doesn't mean much a lot of times -------- and then just as you say that ---- it does mean a lot. People will pay it forward (raising the P/E) when they think the growth is there... and then the shares becoming a shrinking violet when this doesn't prove out and growth slows or stalls. THEN the P/E becomes real important because now it's too high!

Part of becoming a savvy investor is to have some patience in these cases. No need to go running in to catch a falling knife at the first price drop (trying to average down etc). Sometimes a guy can just sit back and watch and wait - keeping a sharper eye on the ball and then try to be ahead of the game either dumping the shares or buying more at better prices just ahead of the nice upside surprise. The problem with that kind of investing is it takes TIME - and it takes some kind of inside track to the industry as a whole - and the economy - etc. Unless you have plenty of extra money - then that's usually just not worth the extra effort. Sometimes it's just time to hold and hope -- or sell and move on to a better investment that doesn't have to deal with the issue. This is when it becomes tough to be an investor. The age old "what to do"?

[WSSix]

I read a few articles on what happened since it caught me by surprise honestly. What I was able to find out, and why I say the traders simply didn't like it, was that they, WFM, simply didn't meet their goals. They still made a good profit but not what they expected. So they've adjusted their outlook going forward. I think they'll adjust to the new competition and be fine but it may not be what the traders want. I'm not a trader so I'm ok with that. The reasons I'm invested in them are still there so I'm good for now anyway.

It's funny though. I'm like you in that I don't care about organic etc. I actually only shop at Whole Foods when I'm near one, which isn't often, and it's usually their bulk trail mixes and bakery items I'm after. That's about it really.

[GregWeld]

The key is -- you've learned patience -- not to just freak out and sell indiscriminately... and you did your work by reading up and trying to understand the "cause". THAT IS GOOD INVESTING!!


Now you keep your nose to the ground and a keen eye on the company to make sure they're DOING what they say they can do. If it's all good - then you stay in... But you ALWAYS QUESTION and pay attention. That's one of the reasons I don't like to see people in too many investments -- they can't even tell you what they own after awhile.

[barrrf]

May or may not affect WFM in the long term - but they've been ordered to pay $800k for over charging. This was local to CA - it may or may not spread.

http://www.nbcnews.com/news/us-news/...tomers-n140311

[SSLance]

Well, today is the day...

http://seekingalpha.com/article/2284...-set-to-launch

I didn't buy any before the open... should be interesting to watch though.

[GregWeld]

Originally Posted by SSLance

Well, today is the day...

http://seekingalpha.com/article/2284...-set-to-launch

I didn't buy any before the open... should be interesting to watch though.

They set the price at $24 which was at the high end of the original quoted.

What that means is high demand for the shares - so expect a nice pop at the open.

Here's where I'm at -- who cares where it opens - or where it ends the first day. I care about where it is a YEAR from now.... Cause it's easy to get all jacked up on this stuff only to have it fade into the sunset.... OR they are really kickin' it and it's a double or a triple. Ya just never know when they're IPO's.


GoPro - Be a Hero.... LOL

[GregWeld]

So this might be really interesting for Investing 102 to watch the whole GoPro IPO...

We watched the Facebook IPO - ultimately it was kind of a flop vs expectations of everyone that bought 2 shares was going to be an instant millionaire (LOL but close to the truth)

I was watching the interview with Nick Woodman, the CEO of GoPro, on CNBC this morning. He was asked a very simple question:

Going forward what's to stop competitors from jumping in and making a better camera - or getting into the business?

Frankly - he fumbled the response - which means he has no answer... He launched into a spiel about the "experience" and "sharing the human experience" blah blah blah - but he didn't have an answer for the actual question.

I think it's the best - most simple question..... if you're an INVESTOR... What does this (or any company) have that others don't - and what do they have going forward to continue making money and growing their business? It will be very interesting to see what GoPro has going forward. Right now they have the brand name! So did Walkman... So did BlackBerry.... I can think of many companies that OWNED their markets at some point. But then what happened to them?

Now - I think GoPro has an outstanding quality camera as far as video quality - I also (and I own a couple) think they suck to run... and I also have other video cameras that are just as good - and are easier to operate - but they're also more expensive and they're certainly not as "handy". So the big question is - can someone come along and make a better mousetrap? That remains to be seen. Apple iPod killed the Walkman... and when was the last time you bought anything with the SONY brand name?

I'm using this as a THOUGHT PROCESS -- not to discuss GoPro and whether or not they're going to have a huge IPO etc. But it will be interesting going forward I think and we can maybe revisit this 5 years from now.