Investing 102

[gearheads78]

Originally Posted by dhutton

I tell folks that I get my investing advice on a car forum and they think I am crazy. Crazy like a fox as they say....

Thanks Greg,
Don

LOL I get crazy looks when I tell people too

[chichirone]

It is a fun conversation with others when we start talking lat-g investing 102 thread. Their faces always crack me up when the topic of dividend reinvesting comes up and the valuable information shared here. Most commonly we receive blank stares and deer in headlights looks.

Buy when others are selling and sell when others are buying.

Thanks to all for the sharing and willingness to educate! It's opened up another world to generating income, wealth, and the ability to pass it forward to family and friends.

[GregWeld]

I appreciate all the positive feedback! I really do! I pour my personal info out here in an effort to stir people to action. I fully understand that investing - in anything - comes with a certain amount of gut wrenching. Even buying something as simple as a rental house... we always second guess ourselves. It's a big deal. I get it.

I wasn't really asking for posts about feelings -- it was really a rhetorical question. But I'm glad to hear these reports of success! I like the interaction because that gets me thinking about what "newbs" need to know - or think about. Just like the recent MLP question.

So RE: Investing 102

Here's the takeaway I want you guys to get from the action in the market like this week.

These big "drops" don't always come with big rebounds. Put a couple of the names you hold in your charting - via Google Finance or Yahoo Finance - and take a look at the TEN YEAR chart. Notice the LONG VALLEY beginning after the peak mid to late 2007.... there's about a 3 year "DIP" there. You have to be mentally ready for that kind of long dip. The last couple years you've been QUICKLY rewarded buying on dip (on sale!) events. But there will be a time when you buy the dip - and then the market drips lower - you buy some more - and the market goes lower and so on.

So now stretch your chart out from 10 year to "ALL".... Look at how many "valleys" are in that chart!! Many of them look violent - some are just flat spots - some are longer.... BUT THE LINE WILL BE LOWER ON THE LEFT SIDE AND HIGHER ON THE RIGHT SIDE. I'm yelling that (really just emphasis) in order to fortify your resolve to STAY INVESTED. You have to trust that you will be rewarded for holding. When the market turns around - you'll look brilliant! And you'll be richer than the asswipe that tried to time the market sold low and buys high.

Timing the market will have you OUT of the market when it's on sale - and all those quarterly dividends WON'T be buying shares that have gone on sale (and come with a higher yield!!).... adding to your pile at lower prices. Then the market will turn up and you'll be out -- and then you'll get back in at higher prices and own fewer shares.

Getting rich takes time... resolve... intestinal fortitude. The guys that are laughing all the way to the bank right now are the ones that bought houses when you couldn't give one away. Ditto the INVESTORS in the market. They HELD and bought - they didn't sell and hide... They know TIME and history is on their side.

[GregWeld]

Originally Posted by captainofiron

oil stuff and ATT has me feeling uneasy, but the others arent too bad. I guess that means I picked well

Unfortunately I lost my job right before Christmas, so no more investing for the time being.

I did get my 401k rolled over and bought some Conoco to bring down my cost basis on that one, actually its the first time I have used the limit function. I put it like 1.50 less than it was trading in the morning and amazingly (or not) it filled later in the day.

So awesome! Here's the deal about using limit orders... over the long run - given the amount of shares to be bought or sold the actual total amount doesn't really make much of a difference. Where the difference comes into play is that you FEEL good about it. And that's very very important for people. Never underestimate the power of feeling "successful" regardless of the size or dollars. Even scoring $20 on a bet can be a far more powerful feeling than being on the losing side of that $20.

Beware of the pitfalls though of using limit orders when they DON'T get filled - and then RISE and you can end up paying more. So they can swing both ways on you and they do so quickly. You also have to stay on top of these kinds of orders... you can't just push BUY and then forget about them. If you're trying to capture the next dividend - you can miss out on something like that if you get too cute.

[captainofiron]

Originally Posted by GregWeld

So awesome! Here's the deal about using limit orders... over the long run - given the amount of shares to be bought or sold the actual total amount doesn't really make much of a difference. Where the difference comes into play is that you FEEL good about it. And that's very very important for people. Never underestimate the power of feeling "successful" regardless of the size or dollars. Even scoring $20 on a bet can be a far more powerful feeling than being on the losing side of that $20.

Beware of the pitfalls though of using limit orders when they DON'T get filled - and then RISE and you can end up paying more. So they can swing both ways on you and they do so quickly. You also have to stay on top of these kinds of orders... you can't just push BUY and then forget about them. If you're trying to capture the next dividend - you can miss out on something like that if you get too cute.

Yea I wasnt trying to get too cute or too smart for my own good

Well I set aside some cash to invest in oil while its down, call it a gamble if you will. But I used half one day with the limit order and it dropped about 0.50 less than what I got it for, so the next day I did the same thing, but it dropped again, today its up, so I definitely feel good about it, I was down like 10% with all the oil price drops on my energy sector, but after I used that limit stop, its only like 7%
Feels like a winning move to me, haha

thanks again

[GregWeld]

Originally Posted by captainofiron

Yea I wasnt trying to get too cute or too smart for my own good

Well I set aside some cash to invest in oil while its down, call it a gamble if you will. But I used half one day with the limit order and it dropped about 0.50 less than what I got it for, so the next day I did the same thing, but it dropped again, today its up, so I definitely feel good about it, I was down like 10% with all the oil price drops on my energy sector, but after I used that limit stop, its only like 7%
Feels like a winning move to me, haha

thanks again

Good moves! Glad this worked out for you. Wasn't singling you out -- when I respond I need to respond in a way that everyone learns something or gets some info to think about.

Half the game is MENTAL --- the other half is just doing. Many get paralysis by analysis... or "wait fever" and never can pull the trigger because they just know they're going save a nickel tomorrow.... tomorrow never comes and the waiting turns into wasting time.

[chichirone]

Originally Posted by GregWeld

Master Limited Partnerships (MLP's) "dividend" is actually structured as a "return of capital" rather than a dividend or interest. Therefore the taxes on the "dividend" which is really a return of your capital is treated differently ---- UNTIL YOU SELL!! Of course this is over simplified...

90% of the income of an MLP by definition must be derived from REAL ESTATE - or NATURAL RESOURCES or COMMODITIES. Thus there is no "bank" MLP etc.


The two you mentioned are not themselves MLP's but rather ETF's (exchange traded funds) that INVEST in MLPS to drive their own income and thus declare a dividend to the shareholders.


Of the two mentioned - I'd personally invest in KYN (Kayne Anderson) over Alerian (neither of these are actually MLP's - they derive their income from MLP's).

[B]It's important to note AND UNDERSTAND an MLP (where you are not a shareholder but rather - you are a PARTNER) versus being a STOCKHOLDER in a publicly traded company... So I'd direct anyone interested in these (MLP'S) to go here and make sure you "get it".[/B


http://www.naptp.org/PTP101/Print/Ba...Principles.pdf

Thanks for the insight Greg. Very helpful. The link helps provide greater detail to the topic.

[captainofiron]

Originally Posted by GregWeld

Good moves! Glad this worked out for you. Wasn't singling you out -- when I respond I need to respond in a way that everyone learns something or gets some info to think about.

Half the game is MENTAL --- the other half is just doing. Many get paralysis by analysis... or "wait fever" and never can pull the trigger because they just know they're going save a nickel tomorrow.... tomorrow never comes and the waiting turns into wasting time.

no worries, didnt take it personal, haha you have made me money, how could I get mad at you, hahaha

[GregWeld]

Here's a very boring - but interesting if read correctly - article on dividends. It's comparing the dividend "growth" and payouts of AT&T (T) and a couple other familiar names.


http://seekingalpha.com/article/2810...at-and-t?ifp=0


I wish I'd know you'd all read it - and then we'd come back and dissect it before I make this next statement.

When you're reading this article - he stated that he was NOT considering the dividend reinvestment. To me - that ignores a FAR FAR larger "key" to growing your retirement funds. Reinvesting the dividend is where the snowball affect comes into play. The dividends buy more shares every quarter - paying more dividends buying more shares and so on. So here's my takeaway on the article. If AT&T pays TWICE what PEPSI (PEP) does per quarter... without doing any math - I would think that long term you'd be buying more shares of T thus growing that investment at a faster rate.

It would take me hours to calculate a hypothetical 10,000 investment - then factor in if the stock stayed at the same price year after year - how many shares you'd buy each quarter and so on... to be able to factually work this all out. But it's really really good food for thought when you're COMPARING various investments. It's just another tool in your box to think about.

I think - again - without doing the math here... that the TOTAL RETURN of an investment over the same period of time (we only can see historically what this is) is telling us the historical advantage or disadvantage each investment has.

100% return over 5 years doubles your money in 5 years! Regardless of the dividend percentage you still did a double. If the comparable company is less, then you didn't do as well.

So to use this articles names:

PEPSI (PEP) 5 year TR = 61.4% Pays 2.71%

AT&T (T) 5 year TR = 61.6% Pays 5.6%

TEXAS INSTRUMENTS (TXN) 5 year TR = 128.3% Pays 2.54%

VERIZON (VZ) 5 year TR = 108% Pays 4.7%


So here's my "thoughts" -- and in full disclosure I own 20,000 shares of AT&T...
When we are looking at the TR we're only looking HISTORICALLY -- we then MUST make some kind of wild ass guess about what the company is going to do going forward. History is nothing but the past - it doesn't guarantee the future. You still must live day to day with your choices and those choices are for reasons only you can detail. I say this because numbers are numbers - they help us and can guide us - but if you buy PEP based on just the numbers -- but you don't like PEPSI and actually buy and drink Coke (KO) products... then what happens to your mind when PEPSI goes down or does something you think is stupid? Ditto this argument on Verizon vs AT&T. I used to own both - I might have made more money holding both... but I like and use AT&T so that's the one I've kept.

What I'm saying here in too many words is -- you still must know and like the companies you invest in. Return numbers are important - don't discount them! 100% is far better than 40%... make no mistake about that. But in DOWN MARKETS you have to be comfortable in your own skin. You can't get to 100% if you sell the first time you freak out.

[glassman]

Great points again Greg. I had forgotten "compounding dividend vs stock growth" (either are important when comparing your ROI vs TR) and refreshing our memories about this is an important (cause its mentioned a few hundred pages back).

On another note, AT&T bought Directv some time back and I missed this transaction on the news. I'm a huge Directv fan and also just found out they launched some "gigatron spaceship" satelite for better band width as video and on demand will become bigger "players".

I see them A- merging (still pending FTC approval) for better market diversification and B- Directv i'm sure sees the programming side "not growing as much" (with the competitors changing how we can prescribe our own programming) so i believe their positioning themselves into a much more wholesaler role. Does this make sense?

Sorry i know this is a "how to buy" thread, not "what to buy" but i'm hoping my third paragraph is more related to thinking theory.....