Investing 102

[WSSix]

You know that's a good point. The ivory deal wasn't meant to cause any problems for collectible art pieces that have a history, but unintended consequences can be a bitch. You definitely have to keep your eyes open and diversify.

[glassman]

Originally Posted by DBasher

I've got a customer that has a pretty impressive car collection, cars that have real history or are "1 of" some low number. I'm not sure what the collection is worth but like anything else it rises and falls with the tide. I'm not sure how it came up but we got on the subject of the bozo in the White House and all the great things he's done for this country.... Apperently with one swipe of Obamas pen, the ivory business took a dump, as in doesn't exist anymore. Illegal to trade, ship, sell, legally you can't give it away. What does this have to do with anything? My customer took a multi million dollar hit overnight with a portion of his business, he still has the cars, the big house and a successful business because all his eggs weren't in one basket. The people in the industry that all they dealt with was ivory...have nothing or very little. These guys aren't street vendors selling goods to tourist but high end art dealers trading globally.
DIVERSIFY!

Eggzactly!!!

[SSLance]

One of my early investments was in HCP, it was my way to enter the healthcare field in a way that was supposed to take advantage of the aging population. It's a dividend champion and has been for a long time but like Greg likes to point out, it seeming more and more like there are fundamental changes happening within the company and I believe I'm going to step away. Anytime there are Judicial investigations into 25% of the company and senior executives leaving the company, the handwriting may be on the wall.

Read this article but more importantly read the comments below the article and see if you get the same feeling.

http://seekingalpha.com/article/3243...nc-safe-to-buy

Hardest decision may be trying to decide which other dividend champ to buy to replace it.

[GregWeld]

Good choice Lance.... better to stand on the side than to get run over. If in doubt bail out. You can always buy it back - or as you have stated - buy something similar.

Remember when buying or selling -- you never have to buy in or sell out all at once... Some times I'll just sell half or a quarter of a position. That way if the shares snap back I capture some of that. But if you think they're going down - then I'll sell all.

[GregWeld]

I just read a stock market report on China - and what has been happening to that market in recent weeks. Seems that 85% of the market is "retail" investors (what we are) and that much of the market is speculation and "margin" buying. With their market selloff - down some 25% in the last couple weeks... many are now only waiting for the market to climb back to "even" before they get out. My bet would be that they'll bail before that - and thus lock in their sizable losses.

My point? Retail investors buy high and sell lower... they fail to understand the risks... and pile in with ever more capital (borrowed when it's margined) when things are going their way... and bail the minute it's not. They're not "INVESTORS" -- they're gamblers. Idiots really... because the ones with the most to loose are probably in the deepest financially... and understand what they're doing, the least.

This all reminds me of the housing market crash here - which also sent the stock market reeling. Borrowing money on their houses - refinancing every other day - buying stuff that depreciates (pro touring cars.... LOL).. and generally living large on money they don't have. That is a recipe for the disaster it eventually became. Don't be "that guy".

The people that stayed in the market - either with houses or the market - eventually did just fine. Those that sold did not. Those that stepped in and bought from the losers (weak handed sellers) - did even better! Be that guy!

[GregWeld]

I cut and pasted this piece because it was so important in it's total value that I didn't even want to post the link thinking that you might not click thru!

Why is it important? Because it's discussing the THOUGHT PROCESS that people must go thru with investing. It's very similar to thoughts we've discussed in here many times.... i.e., it's real easy to think you're going to sell at the top and buy at the bottom or wait and get in at lower prices and blah blah blah... to which I've said how many times???? Just get in and think longer term. Okay -- here it is.

Forget that he is discussing a "style" switch from a Total Return to Dividend Growth Investing -------- because his version of T/R is just really a "GROWTH" portfolio (growth of capital without dividends). For me - TR - is growth of capital AND dividends... what's important is the thought process he discusses and he's spot on!!



+++++++++++++++++++++++++++++++++++++++


So, You'll Switch To Dividend Growth Investing After You Have Your Millions, Eh?
Jul. 8, 2015 6:02 AM ET | 20 comments | Includes: BRK.A, BRK.B, CELG, CVX, GOOG, GOOGL, JNJ, KMB, KO, MO, PG
Disclosure: I am/we are long CVX, JNJ, KO, MO, PG. (More...)
Summary

Some investors who focus on total return say they plan to switch to DGI when they are in or near retirement.
It sounds viable, but it's not as easy as some make it sound.
In addition to trying to make major decisions about allocations and valuations, there would be all kinds of psychological factors involved.
Spend decades building the most wealth possible and then - Bingo! Bango! Bongo! - switch to a Dividend Growth Investing strategy upon retirement. Easy-peasy, right?

It is a sentiment frequently presented within Seeking Alpha comment streams. For example, as "hahaha48" said in response to David Van Knapp's recent article, "Measuring The Success Of Your Dividend Portfolio":

You can always sell everything and buy something different with the same total value.

DGI guru "Chowder" noted that such a strategy wouldn't have worked very well during the 2007-09 market meltdown, when the S&P 500 fell nearly 60% from peak to trough. Another commenter, "glinsight," pointed out the potential tax nightmare of hahaha48's plan.

As much as I agree with both counterpoints, I'm going to give hahaha48 and those with similar views a break. Let's say such an investor makes the conversion from a growth-oriented strategy to DGI when the market is going well (as opposed to when recessionary times have brought severe pain). And let's say most funds are held in IRAs or other tax-favored accounts.

So what's not to like about hahaha48's idea?

Tough Choices

Let's look at a fictitious stock portfolio that reached $2 million, thanks to prudent, long-term investments in blue-chip, non-dividend companies, such as Google (GOOG, GOOGL), Celgene (NASDAQ:CELG) and Berkshire Hathaway (BRK.A, BRK.B).

With retirement looming, the holder of that portfolio wanted to switch to Dividend Growth Investing early in 2014. However, articles on this site and others warned about dividend-paying stocks being so richly valued they were in "bubble" territory. Psychologically, how easy would it have been for the investor to sell everything and then turn right around to fund a DGI portfolio featuring Chevron (NYSE:CVX), Coca-Cola (NYSE:KO), Kimberly-Clark (NYSE:KMB), Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSEG) - the five companies selected by all 10 of my DG50 panelists last year?

OK, so those stocks were overvalued then. The investor could have sold everything and gone all cash while waiting for "opportunities" to invest, right?

Well, the market kept going up, up, up as Year 5 of the bull run turned into Year 6, which subsequently turned into Year 7. In other words, it wasn't the best time to be Johnny Cash.

So, after sitting in cash for awhile and watching the market run without him/her, should the investor return to his/her familiar growth-investing strategy - knowing full well that if there is a major correction, the market will punish those companies (and that there won't even be dividends to ease the pain)?

Should the investor go all-in on DGI, with most dividend-growing companies even more richly valued?

Should the investor exchange his/her growth stocks a chunk at a time for dividend growth companies? That's probably how I would try to execute the strategy... but it would take quite some time to complete the income stream I'd need during retirement, and it would make me second-guess myself constantly.

Psychology $101

I usually chuckle when someone says he or she simply will sell everything one day and then put hundreds of thousands (or millions) of dollars right into DG companies, as if it's something your average retail investor does all the time.

"Altria (NYSE:MO) might be the best DGI company out there. It's overvalued? So what! I'll take 2,000 shares!"

Yeah, right.

I'm bemused by those who say they will merely wait for the next Great Recession-style market meltdown so they can get amazing buys on wonderful companies.

One, nobody knows when the next near-catastrophe will happen.

Two, once such a meltdown does happen, nobody knows when the market will bottom out. I mean, yeah, we know today that March 2009 was a great time to invest... but going all-in then took nerves of steel.

Conclusion

The main reason I settled on DGI after trying other strategies is that it fits my "investing personality."

Building an income stream over years gives me comfort because I need not pay attention to the daily gyrations of the market. I like that history suggests the high-quality portfolio I'm constructing will lead to a good total return, too. I enjoy charting my "Divvy Dollars," watching them grow as I approach my income goals.

And I'm happy that I will not have to guess the right time to sell a six- or seven-figure portfolio, and then guess the right time to buy a totally different six- or seven-figure portfolio.

Because that sure doesn't sound easy-peasy to me.

[WSSix]

I'm having a hard enough time deciding to sell MCD when it's only a couple thousand dollars. I can't imagine selling my entire portfolio only to turn around and by back in. If I didn't step in gradually, I'd be terrified of making a mistake. Hell, I'm terrified of making a mistake now with my pennies.

I do like the comfort of the dividend though. It's helped cushion the falls and sweeten the gains.

[GregWeld]

Just for giggles this morning -- I checked the Year to Date performance of a couple recent IPO's... I've said in the past that I avoid these not because I don't think they're good products or good companies.... but because of the vicious losses they can deliver once they cool off. The HYPE and the market get together and have EVERYBODY wanting to say they are in the name... then the TV cameras go away (they quit talking about them on TV)... and the air goes out.

Sure enough - or true enough - if you're lucky enough to buy at or near the IPO price... and ride them up - and then sell.... oh yeah - you can double your money in a month or two. But.... are you really that good of a trader? My guess is NOT.


GoPro (GPRO) YTD down 19%

Alibaba (BABA) YTD down 25%

Shake Shack YTD up 12% - but it's down 33% this month! OUCH

I'm not saying people shouldn't buy these names... that depends on your stomach - your wallet - your age - your overall financial health - your longer term horizon. I'm just saying WOW.... What a ride.

[Vince@Meanstreets]

IPO's are hit and miss. Perfect for the gamblers.

What about CMG and FIT. Both doing well. CMG open was $37 and FIT was $30.

[ErikLS2]

CMG and FIT are not the same CMG is much cheaper based on P/E and PEG Ratios and the best in class in fast casual dining. FIT is still out there fighting for position with Apple Watch and others, too early to tell who will win. Just my worthless $0.02 but after looking these up think I'm going to buy some CMG, thanks! I eat there all the time and once my food was free because I had to wait 5-10 minutes for more chicken to cook and once it was free because I was a regular and they "just like to take care of their regulars". Plus if it starts going south I will certainly know about it.