Investing 102

[toy71camaro]

I opened an account (savings) at Schwab just so I could open a brokerage account and use their research tools. LOL. they are top notch, but I still have my accounts at Sharebuilder.

Sharebuilder also does the normal dividend reinvesting option (on by default). and its 1 price per trade, regardless of # of shares. You get a discount on trades due to being a Costco member, and the "automatic investment" option is the $2 one, which i think is normally $4 from them, but discounted due to Costco membership.

[GregWeld]

I just hope everyone made a little money this year!

[Vegas69]

I'm stoked, I employed your philosophy about 14 months ago. The money I used to "let the bank rent for nothing" is now up 11.5% over that time. It's starting to snow ball into some real money.

[GregWeld]

Originally Posted by Vegas69

I'm stoked, I employed your philosophy about 14 months ago. The money I used to "let the bank rent for nothing" is now up 11.5% over that time. It's starting to snow ball into some real money.

There ya go!!

[silvermonte]

So I have an update and a question. CASY is the stock I am referring to for anyone that wants to look it up. Almost 2 years ago I bought a small amount of a stock $1500 worth, at the time it had a dividend of 1.3%. I was super happy with the stock for all the reasons listed earlier in this thread. Now this stock has had the growth I was looking for but the dividend is going down. The share has grown $20 apiece and the dividend is now down to .97%. Is this a normal rate? I know as one goes up the other will go down.

I guess what Im asking is, is this is normal or should I continue to hold on to it? Or is it time to sell and buy something with a higher dividend. I feel the company is not even close to done growing and I have been continuing to buy more, just in much smaller chucks to keep everything balanced within my account. Im happy in every way with this company. I just wondering if there was a smarter way to be using my money.

[GregWeld]

Miles --- you've got TWO fundamental mistakes in this line of thinking... and I'm not calling you out or flaming you on it. In fact... it's good because others can learn from this post.




#1 -- The dividend did not go down. IN FACT the dividend has gone up! It was paying .18 a quarter - it's now paying .20 per quarter.

What you're doing is a failure to understand the way dividends are looked at for a comp. The dividend is paid in DOLLARS -- and figured as a PERCENTAGE. The dollar amount stated has to get calculated into a percentage AT CURRENT SHARE PRICE. So as the share price goes UP -- the PERCENTAGE that the dividend represents appears to go down. It works the other way in a falling stock market - as the price of the shares drop - the percentage of the share price the dividend represents goes up.

You - having paid a lower price per share - are getting a higher percentage of dividend rate on your money invested. So you always need to do your own calculations on what YOU PAID - and what you're currently receiving. I don't know what you paid so can't calc that for you.

The MATH for doing that is:


The ANNUAL DIVIDEND amount (4 times the quarterly amount) in this case the annual amount is .80 (4 x .20) DIVIDED by the share price. And move the decimal two places.


So let's use this actual stock and price.


.80 dividend by 82.63 = .009681

Move the decimal point -- and you have .97 %


#2 -- You've fundamentally made another mistake in your thinking by not looking at the TOTAL RETURN. Remember that if we're going to "accept" a low dividend percentage - then we need the offsetting GROWTH in the share price so that our TOTAL RETURN is appropriate. TOTAL RETURN is the ultimate goal here - and should alway be the main consideration for ANY investment regardless of whether or not it's stocks - bonds - or real estate etc.

CASY has a TR of almost 10% for one year -- 62% for 3 years - and 184% for the last 5 years.

While this year isn't particularly stellar - overall this stock is a grower and if you're happy with them - I'd continue to hold or add to the name. Their earnings are growing (as reported) and that's a very good thing.

Originally Posted by silvermonte

So I have an update and a question. CASY is the stock I am referring to for anyone that wants to look it up. Almost 2 years ago I bought a small amount of a stock $1500 worth, at the time it had a dividend of 1.3%. I was super happy with the stock for all the reasons listed earlier in this thread. Now this stock has had the growth I was looking for but the dividend is going down. The share has grown $20 apiece and the dividend is now down to .97%. Is this a normal rate? I know as one goes up the other will go down.

I guess what Im asking is, is this is normal or should I continue to hold on to it? Or is it time to sell and buy something with a higher dividend. I feel the company is not even close to done growing and I have been continuing to buy more, just in much smaller chucks to keep everything balanced within my account. Im happy in every way with this company. I just wondering if there was a smarter way to be using my money.

[silvermonte]

Thank you Greg for getting me straightened out. You are 100% correct about me being confused about how the dividend payout works. What you said makes perfect sense and I feel much better about it now. I was just doing my 6 month review of my holdings. Im well in the green on this one, but had a thought that maybe it was time to review this particular holding and look for something better.

[GregWeld]

Originally Posted by silvermonte

Thank you Greg for getting me straightened out. You are 100% correct about me being confused about how the dividend payout works. What you said makes perfect sense and I feel much better about it now. I was just doing my 6 month review of my holdings. Im well in the green on this one, but had a thought that maybe it was time to review this particular holding and look for something better.

EXCELLENT!

[WSSix]

congrats Todd and Miles! Glad to hear you guys are having success with this.

[GregWeld]

I personally have huge holdings in "oil and oil related" companies... anyone that has these types of holdings is getting killed right now. This morning has them down hard once again. I call this action the "death of a 1000 cuts". Every day they go down. Here's the reason for writing this morning - because it's the end of the year - and people should be assessing where they are and where to put new money etc.

"Never try to catch a falling knife" is a very good statement that has been around far longer than we have been.


Many times I "average down" in an investment that I think has long term potential to either provide me with current income (making the cuts acceptable) or that I think is being oversold for a temporary issue. I've made great money on the snap backs - I've also had my ass handed to me - so in a nutshell - these are risky ways to play.

Now - back to the "never try to catch a falling knife". I always have cash waiting to be invested. Unlike most - I don't have to put money to work all the time. I'm lucky and can hold pretty healthy positions in cash and not have it affect my future or current income. So I'm ALWAYS on the prowl to get this wasted money off the sidelines and into something. BUT -- ALWAYS THE BIG BUTT IN THE ROOM -- I've learned to be patient! When something is falling -- you don't want to just rush in and be a buyer.... In the market we need to learn that. Be patient and watch and wait - it's better to wait for a bottom to be put in the stock - have a stabilizing period - and then maybe even wait for it to start to go back up. While you might not get the absolute lowest price of the decade -- you'll also not suffer the unknown "death of a 1000 cuts" which is really more important to your mental health than your pocketbook (if you're a long term investor). One or two names going down hard can affect your return for the year. Oil has definitely hurt my percentages this year.... where last year they were leading the charge higher.

Now --- if you are trying to adjust your portfolio -- and or you have new money to go into the market -- it's also paid off for me to buy the sectors or names that are DOWN over the ones that are up big. It's more painful and is far harder mentally to do -- but if it's the right sector/names they often do have nice outsized gains when (and if) they come back to more normal levels. They also pay nicer PERCENTAGE of dividends while you're waiting for that to happen. Remember as the share price falls - the percentage of yield rises... which is what generally builds a floor for the share price.

Think about this like rental real estate... as the price of the house falls - if it can collect the same amount of rent - that rent is a better ROI (return on investment) as a percentage. If it keeps going down (the price) eventually you might have to lower the rent --- but that's the part we don't know and have to "okay" with. What we do know is that it won't stay this way forever and we will be made whole again down the road.