Investing 102

[toy71camaro]

Merry Christmas to you too, Lance.

And everyone else. Enjoy the holidays with the fam, let the market do its thing.

[GregWeld]

Really good to hear this Lance... it is an "attitude" and it's a learned attitude. While we need to "respect" the market... once we understand the ebbs and flows -- we can start to see the beauty versus fear.

Merry Xmas to everyone!

Originally Posted by SSLance

Greg, I have to tell you...during these last two large drops and subsequent rallys the DOW has taken...I've just sat back and watched smiling the whole time. Watching the charts from this different angle that I now see things from has been so much easier to stomach. These quality companies this thread has helped us pick just don't take the violent rides the rest of the market does. They also seem to be the first ones to recover as well.

I briefly thought about dribbling some more in during this last drop, but I was busy MAKING MONEY at the shipping store and by the time I got a break, the dip was over. No biggie, I'll get them next time.

Merry Christmas everyone!!

[GregWeld]

So here's why it's important to not just throw a dart at the stock market dart board. I always say to invest in best of breed companies that pay you a decent dividend - the dividend is the gift that keeps on giving even when the stock price isn't particularly going your way. AND you want to invest in companies with HIGH HISTORIC TOTAL RETURNS. While this TR won't be a guarantee of the future - it is a "metric" (measure) of what the market thinks of the investment over time.

There's steady eddies -- there's high beta (volatile) -- there's high risk that pays high dividends -- there's ETF's that are baskets of stocks that cover every conceivable category -- there's even higher risk IPO's (initial public offerings)... and this is what confuses people. There's just so many choices. Pick the wrong ones and they can kill your investment nest egg... while getting "lucky" could make you a millionaire. My feeling there is you might as well go out and buy $300 a month worth of Lotto tickets. I'll wave to you while you're dining in the food line. LOL


We've used ALTRIA (MO) many times as a steady eddy that pays a decent dividend. It's a SIN STOCK (Booze and smokes). It's very unsexy.... it's even hated for what it is! But it's GROWTH (share price increase) this year is like 33%.... all the while paying out a 4% dividend.


IBM (IBM) meanwhile is DOWN almost 16% while paying a paltry 2.7%


These are just examples I'm going to pick on -- to show why I use the history of their TOTAL RETURN to help guide my investment decisions...


IBM has a 1 year TR of DOWN 9.6% a 3 year of DOWN 8.8% and worse yet is a 5 year TR of UP 35.6%.....

MO has a 1 year TR of UP 39% -- a 3 year of UP 97% and a 5 year TR of UP 231.5%

Which one would you have rather invested in?? So my point is -- don't just pick names that you know (like IBM) because you THINK they're best of the best... do just a tiny bit of research and really make those important comparisons!

So just using the TR as a guiding light.... I would have bought the Altria (MO) over IBM.... and IF I'd done that - I'd have made a better return in ONE year with MO than 5 years with IBM. That's HUGE guys -- just huge. Is that metric 100% accurate? No. Nothing is.... but it's a pretty decent place to hang your hat. I ALWAYS use it as another point of reference before I hit the buy button.

[68Cuda]

Originally Posted by GregWeld

We've used ALTRIA (MO) many times as a steady eddy that pays a decent dividend. It's a SIN STOCK (Booze and smokes). It's very unsexy.... it's even hated for what it is! But it's GROWTH (share price increase) this year is like 33%.... all the while paying out a 4% dividend.

I love my MO stock and I do not smoke or drink. I started managing my own 401k at the end of 2010. Here is a cross-section of my holdings (some of which I sold) along w/ total return, hold period and APR. I have about 5-6 others I have bought and sold, and a few I picked up recently that I am not showing. I also took a bath on Bank of America somewhere along the line. But, overall, I am averaging a bit over 17% annual return.

You may also notice a trend, most of these are big boring companies that pay decent dividends. I just looked for them to be on sale (high dividend rate for the sector) then bought them. Of course the stock market is doing well this year, that makes all of us look smart.

[68Cuda]

Originally Posted by GregWeld

IBM has a 1 year TR of DOWN 9.6% a 3 year of DOWN 8.8% and worse yet is a 5 year TR of UP 35.6%.....

It also helps to learn a little about the company before you throw money in just looking at a chart. I work in the same industry as IBM and 14 years ago was a design engineer at a factory building tools to sell them for their NY and VT factories. IBM used to be one of the 4 companies we partnered with on semiconductor process development. I have a lot of respect for where they have been. In recent history though, they have suffered. Their semiconductor MFG has been bleeding red for a while and the CEO has been under pressure to offload it.

They recently made a deal with a foundry to take the semiconductor MFG group, a large amount of their intellectual property, and gave the "buyer" $1.5 Billion in cash and a deal to buy chips from them. That is why the stock has suffered. So, when you see a company's stock drop, make sure you do a little research and find out the backstory before you just dive in! Now, looking forward, can they do well without the in house MFG? Historically some companies, like Qualcomm, have, others, not so much. Sometimes owning the MFG can be a competitive advantage (just ask Intel and Samsung). Their stock could take off, time will tell. For better or worse I will stay away from this one.

An article on the IBM deal:
http://www.bloomberg.com/news/2014-1...chip-unit.html

Generally I stay out of the semiconductor stocks, I am too close to it if that makes sense to you. The Intel deal I picked up on early last year was too obvious to pass on. I then sold it when I thought it was back in line, still made me nervous to hold on to it.

[GregWeld]

Originally Posted by 68Cuda

It also helps to learn a little about the company before you throw money in just looking at a chart. I work in the same industry as IBM and 14 years ago was a design engineer at a factory building tools to sell them for their NY and VT factories. IBM used to be one of the 4 companies we partnered with on semiconductor process development. I have a lot of respect for where they have been. In recent history though, they have suffered. Their semiconductor MFG has been bleeding red for a while and the CEO has been under pressure to offload it.

They recently made a deal with a foundry to take the semiconductor MFG group, a large amount of their intellectual property, and gave the "buyer" $1.5 Billion in cash and a deal to buy chips from them. That is why the stock has suffered. So, when you see a company's stock drop, make sure you do a little research and find out the backstory before you just dive in! Now, looking forward, can they do well without the in house MFG? Historically some companies, like Qualcomm, have, others, not so much. Sometimes owning the MFG can be a competitive advantage (just ask Intel and Samsung). Their stock could take off, time will tell. For better or worse I will stay away from this one.

An article on the IBM deal:
http://www.bloomberg.com/news/2014-1...chip-unit.html

Generally I stay out of the semiconductor stocks, I am too close to it if that makes sense to you. The Intel deal I picked up on early last year was too obvious to pass on. I then sold it when I thought it was back in line, still made me nervous to hold on to it.

LOL -- There are 469 posts here -- 300 of them probably mention that you should start out buying companies you know or understand their business. Then once you've identified some of those names -- there's another 200 posts discussing what to look for and how to compare their performance. Total Return is just ONE metric I like to use because it's a big bold brush stroke that shows HISTORICALLY how an investor would have done over time - as compared to the other company(s) someone might be comparing to.

The entire thread is about how to think - how to compare - where to look for information... the actual names used are just for examples since everyone has to use something for discussions sake. The thread is how to catch a fish - not catching someone a fish sort of thing.


I had a call the other day asking "what is an acceptable dividend percentage" -- and this is a tough answer - which is why I go straight to the total return metric - because I can accept a lower dividend payout if that payout comes with capital growth (the stock price rises) - thus a good or great TR. Total return factors in both the dividend (reinvested) and the share price appreciation. It represents the growth of your money. Period. I'll take something that has historically made 100% over 5 years versus gambling on a the competitor that has only had a 30% TR over the same period. Why do I call it gambling? Because if you buy the 30% TR - you're just hoping and praying that for whatever reason that company (thus the MARKET) is going to suddenly reward them. That's a gamble. All of this is making the ASSumption that you've already identified a few names to invest in... so you're still just doing research and it's just one more thing to help you in making a decision.

[ironworks]

So I have been looking at some more stocks to pick up to make myself diversified and I struggle to just drive around in my world and know what to pick. Sure I should have picked Chipotle but they don't have a dividend, but there stock really started to sore around the time we started eating there and the line was always 30ft out the front door.

But my question goes along with you last posted, How does a guy find out about the stocks that are good ones that he would never ever know about in his day to day life. Your Alteria (MO) stock I would never know about, the KMI that seems to be a good one. I don't see that stuff and I live in the oil patch since its a pipeline company. I don't think watching all the stock trading shows are really that great.

Currently I find a stock that Think might be growing and I look at it on the long term to see if it constantly grows upward. Then I look at the dividend and make my choice from there. But I'm sure there are way more stocks out there then I will ever know about.

[68Cuda]

Originally Posted by GregWeld

LOL -- There are 469 posts here -- 300 of them probably mention that you should start out buying companies you know or understand their business.

Greg - I have been in the semiconductor field since 1997, prior to that I was an auto mechanic. Basically I am a technician that went to college and became an engineer. I have been riding the roller coaster of this industry for a while. In 2003 the factory I was working for made semiconductor capital equipment shut down permanently and I was out. Pre-9/11 we were trying to cope w/ growth with over 250 employees and working to expand from $5M per month to $40M per month to fill demand. In 2002 our sales were about $5M total and they ended up shutting down MFG and dropping in several steps down to about 60 employees. At the end of May 2003 I was the only person left in the building as I transferred all the design and documentation to the parent company. I took the opportunity to go to graduate school rather than transfer to the main office in Kyushu. In 2006 I left a "quiet" research engineer job at the university to go back to the semiconductor field, this time in the more "stable" MFG side of the chip business. I was rewarded in 2007 when that factory was shut down. Fortunately I was able to find another position in the company at a smaller facility at the same site.

Investing in this industry scares me because I understand the business and consider myself a long term investor, it is bad enough that my income is somewhat dependent on this sector.

[GregWeld]

It's a HUGE - make that GIANT - mistake to invest money is the stock of the company you work for... essentially ending up with "all of your eggs in one basket". Ask the folks at WorldCom... or PG&E...or Chrysler... or Conseco... or Enron... or Washington Mutual...


When I say to invest in companies you understand and know... I'm talking about if you shop at Home Depot or Lowe's... or you love your Ford... or use AT&T or Verizon.

Originally Posted by 68Cuda

Greg - I have been in the semiconductor field since 1997, prior to that I was an auto mechanic. Basically I am a technician that went to college and became an engineer. I have been riding the roller coaster of this industry for a while. In 2003 the factory I was working for made semiconductor capital equipment shut down permanently and I was out. Pre-9/11 we were trying to cope w/ growth with over 250 employees and working to expand from $5M per month to $40M per month to fill demand. In 2002 our sales were about $5M total and they ended up shutting down MFG and dropping in several steps down to about 60 employees. At the end of May 2003 I was the only person left in the building as I transferred all the design and documentation to the parent company. I took the opportunity to go to graduate school rather than transfer to the main office in Kyushu. In 2006 I left a "quiet" research engineer job at the university to go back to the semiconductor field, this time in the more "stable" MFG side of the chip business. I was rewarded in 2007 when that factory was shut down. Fortunately I was able to find another position in the company at a smaller facility at the same site.

Investing in this industry scares me because I understand the business and consider myself a long term investor, it is bad enough that my income is somewhat dependent on this sector.

[GregWeld]

This is a great question! And don't think you're alone with this dilemma!


Okay - I know I'll miss something in this response - but you'll get the gist of where we're going with this.

Everyone should make a small list of the SECTORS that make up the US stock market. All you need to do is Google - "List Stock market sectors" to come up with this. Here - this is a link to a list:

http://www.investorguide.com/sector-list.php

From a list like this -- you should pick some of INTEREST TO YOU... not the ones you know absolutely nothing about... start with some that are somewhat familiar to you. Try to get to 7 or 8


From there - you can start to search for the biggest well known names from each SECTOR.... So let's just do a quickie here... let's pick "banking" (everyone does some kind of banking). First thing I'd think about is where do I bank - or what's the biggest bank name around me? West coasters might come up with Bank of America or Wells Fargo... Midwest will come up with some different big regional bank names - east coast will be familiar with a different set of names etc.

Go to Google Finance --- look up the name or two that you came up with... Let's say - since the poster is from California - he picks Wells Fargo. Start typing Wells Fargo in the box where it says SEARCH FINANCE -- when you see the name and symbol come up - choose it and hit enter...

Now -- this is going to bring up a selectable chart --- you can choose 1 day or up to 10 years or ALL.... I always start with YTD -- then I look at the 3 year or 5 year - and 10 year. I just want to see the general direction of the line. If it's flat - or looks like camel humps etc -- I think maybe I'll keep looking...

More importantly here -- if you scroll down just a bit -- there's a list (short) of companies they (Google in this case) feel are "RELATED". If you look at the list of related companies - there may or may not be other companies shown there that you know. I start to look at the ones I know... look at their chart - check out whether or not they pay a dividend - is the dividend increasing (you can see the dividend payouts clearly using the 5 year view on the chart... and you can also see some interesting information at the top of the page to the right of the daily closing price.... you can see the price range - the div/yield - the beta - the P/E etc. EACH TIME you put in a different company name in the search field -- go down and write down some of the "RELATED" companies they show... all you need is two or three to start the process.

What this PROCESS is going to do for you is to lead you to names you're familiar with... and you'll start to look them up and you'll start to get a feel for which ones are "better" than others. Maybe you find CHIPOTLE MEXICAN GRILL -- but realize that at $600 a share - and no dividend -- that's not something you want to put your money into -- but maybe during your search for them - you see JACK IN THE BOX.... and during your peak at JACK -- the related companies shown there leads you to somewhere else.

Here's what I do to shorten the process just a bit. There is a column to the right of the names shown in the RELATED list -- it's titled d/m/y. And there's a squiggly line corresponding to each name. d = day. m = month. y = year. I click on the "y" for year -- and that gives me a real quick look at the trend the line is heading. I skip the ones who's lines are headed down.... LOL

Try this whole scenario searching for ALTRIA (MO) -- you can either type in Altria -- or since we've given you the trading symbol - MO - you can just type in MO...

So to sum it up --- make a list of SECTORS you'd like to research -- then find out what kinds of companies make up that sector... and search one you know - then check out others in the same "related" field and compare them. Maybe you decide you don't want to be in that sector at all ---- but what the sectors do is to help you diversify and broaden your research. You don't want to have a portfolio of all retailers or all industrials just because that's a sector you're most familiar with.

Think about this like if you wanted to know something about football --- you might just Google FOOTBALL -- from there you might see there are leagues - and in the leagues are teams etc. Then you could check out their records etc.

If you have up to 100K to invest - you'd only need 20 names.... that would get you 5% of your investable $$ per name -- and that's what we TRY to achieve. It's harder to do that when you have smaller amounts - but the GOAL is to get to where you have around 5% per investment. Maybe that starts out at 100% in one name - and then the next time you have some dough you buy name #2 -- then you have 50% in each name - next time you add another name - now you're at 33% and so on. Diversity will get you 10 names in 10 sectors -- from there you can circle back and add to or expand.

DON'T FORGET TO CHECK EACH NAMES TOTAL RETURN!! You can do this on Schwab easily.... or perhaps the other discount brokers as well.

Another really good site for checking stuff out is MORNINGSTAR.COM -- go to the main site and then look for "STOCKS" -- click that -- then on the left you can scroll down to find "SECTORS" -- click that and it starts giving you charts of performance by sector. Choose a sector -- and it comes up with a list of names in that sector --- now --- click on the "5 YEAR" and it will sort by the best performance over that period....

I choose FINANCIALS -- then went to the chart and clicked 5 year and MASTERCARD came up as the top performer over the 5 year period... below that was VISA etc then BLACKSTONE GROUP (one I own).... click on the name and it takes you to the info for that particular company -- and then there's all manor of info to click on! Oh hell yeah you'll get lost for sure!! LOL

Originally Posted by ironworks

So I have been looking at some more stocks to pick up to make myself diversified and I struggle to just drive around in my world and know what to pick. Sure I should have picked Chipotle but they don't have a dividend, but there stock really started to sore around the time we started eating there and the line was always 30ft out the front door.

But my question goes along with you last posted, How does a guy find out about the stocks that are good ones that he would never ever know about in his day to day life. Your Alteria (MO) stock I would never know about, the KMI that seems to be a good one. I don't see that stuff and I live in the oil patch since its a pipeline company. I don't think watching all the stock trading shows are really that great.

Currently I find a stock that Think might be growing and I look at it on the long term to see if it constantly grows upward. Then I look at the dividend and make my choice from there. But I'm sure there are way more stocks out there then I will ever know about.