Investing 102

[GregWeld]

Originally Posted by 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.....

First rule of investing.... don't buy anything based on what could or might happen. Buy based on what is at the time. Anything from then on is considered being lucky and is a gift.

What happens is you buy based on some proposed merger or acquisition.... then the government steps in and doesn't allow it or a competitor steps up and makes a competing offer.... and on and on. Sometimes the brains that are much larger than ours - and they have more money (remember that we're always just along for the ride) step in and sell their shares because the purchasing company is acquiring too much debt in the deal... OH BUDDY --- I've seen all these scenarios. I'd refer to this as "being cute". The minute you do that - you get your ass handed to you.

This "being cute" (not saying you did this or that anyone is doing this - remember just responding to "everyone" reading) is called ARBITRAGE on wall street. You're trying to place a bet based on what you think will be the outcome... you can bet on the company being acquired... by buying their shares thinking the board will reject the first offer and the acquirer will raise their bid... or you can buy a competitor thinking that if this deal goes thru for the higher price (usually buyouts come with premium price paid) that it will raise the P/E for the "others".... There's a hundred scenarios to be played. I used to do this all the time. Most of the time it never worked out the way I thought. When it did - I was a hero in my own mind.

If you're young - and smart - and want to game this stuff... and have 10K you're willing to play with... it's fun as hell and can be very profitable. Nothing wrong with it. It's only "wrong" when you bet and it goes against you. Then you sell - and the next week - there's different news and your bet would have paid off.... it's just the way these kind of bets go. Then it's more about knowing what you're doing and knowing yourself and how strong or weak your hand is.

[GregWeld]

Sitting here this morning and the talking heads on CNBC mentioned "Comcast" (CMCSA). Comcast has three classes of stock... but I don't want to talk about "a" stock... and this isn't about Comcast. I don't own it - never looked at it - hate the service when I had it in my house. Here's what I noticed when I looked at the 5 year chart and what I wanted to post about:


Think about if you were retired in 2010... and you owned Comcast "A" shares... and they paid you .09 per quarter. FOUR YEARS later - they're paying you .23 cents per quarter (did you ever get a 100% raise in four short years while working??) - and as a bonus the price of the shares is up 230%

With that kind of a number you could then sell HALF your holdings in this name - and buy something(s) else - and still get the same income you'd counted on 4 years earlier - and use the gain to diversify some more. The shares you held would be considered "playing with the house's money" as they would essentially be "free money" (the gain on the shares).

THAT IS WHY I LOVE DIVIDEND INVESTING -- which, by the way, is not the only way to invest! It's just one way to look at stocks. I like it because it works for me in good times and bad.

[GregWeld]

Today -- actually the last few days -- have been real "interesting". These kinds of swings used to freak me out -- I'd be all in on one day and the next afternoon the sky was falling, and I'd sell all. Then I'm sitting with a pile of cash - and things would flatten out or rise a bit and I'd be all in again. I look back 20 years and think that had I stayed put what my net worth would be today. I bought STARBUCKS IPO at $14.50 a share (1000 shares).... flipped them out the following Friday for a gain of $500 and thought what a score I'd just made. IDIOT! LOL


So let's talk about MOMENTUM.... Momentum is when a stock trades up (or down) just because.... there's no real fundamentals... the earnings (P/E) couldn't possibly enter into the equation because it's so far out of whack... but everybody you know is into "it". And the talking heads on CNBC/Bloomberg discuss "it" every half an hour. These kinds of names work magic.... while they're working. That's the hard part. Nobody can know when they're going to quit working and the UP momentum turns south. All the people that were in it to win it -- suddenly don't want to touch "it", and sell out as fast as they can.

Let's use the action in GoPRO (GPRO) today as nothing more than an example... Pull up a chart and stretch it out to "all". What I want you to look at this time is the VOLUME hashes along the bottom of the chart. Notice the SPIKES UP in volume and follow that spike in volume straight up to the PRICE action in the line representing the price. Notice it DIPS (drops) at almost every spike in share "volume" (meaning shares exchanged hands). That's people selling -- and of course others have to buy or you wouldn't have a transaction. My guess is people are trying to buy on the dips... That can turn into trying to catch a falling knife -- or can work well if the momentum continues in the name. Hard to know which way it will go.

Note that there's also a couple spikes where the shares go UP as well. They seem to be EARLY ON in the life of this stock. Since then the spikes have all been selling pressure.

I don't care if you own GoPro - what I'm showing you here is just some more "fodder" to look at when you're thinking about jumping into or out of a name. Remember that the rule of any market is that prices RISE when there's more buyers than sellers - and the reverse is true when there's more sellers than buyers.

In this example -- had you gotten in early enough - you'd still have a very nice gain (60%)... but if you got in later -- after you kept hearing that this was the next free rocket ship to wealth -- well then, you might not be so happy with it right now (a decline of 21% YTD). This is when you start to question your intentions. Not a bad thing. It happens. You never question yourself when the stuff is shooting to the moon! You only start to question your holdings when they're going down or go underwater. Was this an INVESTMENT? Or did you think/hope it would just go up 10 or 20 bucks a share and you'd scoop the gain and be gone? Now what to do. Maybe now you're underwater for 10 instead of up 10....

THIS IS WHAT PEOPLE HATE ABOUT INVESTING!!

It's EASY when everything is going your way.... it's damn hard when it isn't. That is what I'm always talking about when I say - I like to own stuff I can sleep with. A couple bad names in the portfolio can kill the performance of the good ones. Not sure why that is - but they always seem to fall harder and faster than they went up. They tend to creep up - a buck here - 50 cents there... but when they suck - they suck in a day or two!

I don't care about this name (GoPro)... I'm discussing the market... how you see the market... and learning from it. That's the key - we want to be better next time... we want to understand BEFORE we go into something what the pitfalls are. It's hard to make and KEEP money - it's really way easier to lose it. Whether you're into this kind of stuff or not - you should be watching it. Learning from it. Many times we get clobbered by something we'd never have guessed. That's life. It happens. Oil is a great example. Anything to do with oil is just getting hammered right now. Unforeseen! Who the hell would have guessed that! Not me! There is always "market risk". I build that in when I look at the dividend percentage. I think - if this sucks - am I okay with the dividend? It helps. It doesn't cover the sin - but it helps take some of the sting out. It's another lesson I've learned along the way. Another one is the 5% rule. If you can try to stick with that rule the losers don't hurt as much. Load the boat up (get greedy?!?) and one bad period can ruin your performance temporarily (or longer!).

[GregWeld]

Warren Buffett once famously said, "If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes."



That's pretty good thinking right there.....

[GregWeld]

By the way... to be certain of what I'm discussing above is NOT that nobody should buy these types of stocks - The GoPro's / Tesla's / Alibaba's etc.... there "can be" huge money made in these kinds of stocks! What I'm talking about is if you're a relative newb to investing - you're trying to build some retirement - you have "limited" funds (say less than 100 grand already saved and invested)... BEWARE the gut wrenching drops stocks like these can take. You won't know if you're ready to stomach that until it's actually your hard earned money. It's not hard to take if you're just watching them do this. It's far far harder when it's real money.


Another one today is Tesla (TSLA).... down $13 ish today and $100 off it's high. This was a market darling - and plenty of people have made a nice gain on the shares... but many bought it $100 "ago". OUCH.

[SSLance]

I sold out of MCD several months ago at about what I paid for it. It wasn't until just the other day when I noticed their new ad campaign on TV that I went back to look at their chart since I sold it. Still glad I sold it.

And I'm happy with the rest of what I kept, plenty happy enough to own them for 10 years.

The DOW chart the last 5 days has been CRAZY.

On a side note, commodities... I know it's not talked about on here much, but I have some grain (corn and soybeans) from the 2014 harvest that I've stored until 2015 to delay the income tax on the sale. Watching the grain prices go up and down is VERY much like watching just the DOW...and just about as frustrating. The commodity traders are just like the damn equity day traders, for the most part they drive the price of grains up and\or down, only instead of earnings, news bumps, rumors, etc to spike or drop the prices, it's yield counts, cargo sales overseas and fund buying making spikes and dips for the traders to make money on.

[GregWeld]

All I can say is ---- I sure hope some of you own NetFlix (NFLX)! Just WOW!

[WSSix]

Originally Posted by GregWeld

All I can say is ---- I sure hope some of you own NetFlix (NFLX)! Just WOW!

Nope, but I did snatch up some JNJ yesterday. So far, my waiting a little bit to fund my roth this year is paying off. Normally, I would have had JNJ funded by now and taken the hit instead of getting it on sale.

A few more of my positions are set to report q4 2014 earnings soon. I may wait to fund them after their reports come in.

[glassman]

Originally Posted by GregWeld

All I can say is ---- I sure hope some of you own NetFlix (NFLX)! Just WOW!

Just heard that. I woulda put money on them "going down", meanwhile, my dumass is watching everybody and their brothers buying this product. I really should start paying attention....

[GregWeld]

This thread was started December 2011.... Thought I'd take a look at a few of the names that have been used in this thread for examples, for no other reason than to see where a guy would be if he'd put some money in the market at that time.


This is purely a price comparison - no dividends included or re-invested etc.

AT&T - Up 15.65%

Con ED - Up - 23.32%

Coke - Up - 33.77%

Pepsi - Up - 55.91%

McDonalds - DOWN - 2.16%

Altria - UP - 99.01%

Philip Morse - Up - 18.76%



An even better eyeopener would be what dividend (in dollars) they were paying and what they're paying now.

These numbers are PER QUARTER.... so annually the increases need to be multiplied by FOUR.


AT&T - then .44 - NOW .47

Con ED - then .61 - NOW .63

Coke - then .24 - NOW .31

Pepsi - then .52 - NOW .66

McDonalds - then .70 - NOW .85

Altria - then .41 - NOW .52

Philip Morse - Then .77 - NOW 1.00