Investing 102

[Vegas69]

The huge stock gains in the last 3-4 years reminds me of the housing market 10 years ago. A huge upswing in a short period that resulted in a big mess. What fundamentals do you guys see in the stock market that dictate these huge gains being anywhere near sustainable? Serious question as I have not a clue. I know interest rates and a stronger economy have freed up discretionary income but to the tune of a 200% rise in stock price? Are we experiencing some new circumstances in the stock market that go against the historical grain?

Greg, I say that all the time, there is never anything wrong with taking a profit. I can say with absolute certainty that there have been times in the last 15 years where I would go back and park money in a safe place after taking a profit.

I'd like to hear some other perspectives on the market.

[GregWeld]

Originally Posted by Vegas69

The huge stock gains in the last 3-4 years reminds me of the housing market 10 years ago. A huge upswing in a short period that resulted in a big mess. What fundamentals do you guys see in the stock market that dictate these huge gains being anywhere near sustainable? Serious question as I have not a clue. I know interest rates and a stronger economy have freed up discretionary income but to the tune of a 200% rise in stock price? Are we experiencing some new circumstances in the stock market that go against the historical grain?

Greg, I say that all the time, there is never anything wrong with taking a profit. I can say with absolute certainty that there have been times in the last 15 years where I would go back and park money in a safe place after taking a profit.

I'd like to hear some other perspectives on the market.

If you click a chart of the SPY --- 10 years out.... this is a ETF that is the S&P 500 stocks.

What you'll see is a peak in '07 and a price of about $149 a share.... then a big decline... then the rise to current value. Current value is $212. That's a 56% rise ==== not 200%

You can't use the bottom to calc a gain like this - because you first need to get back to it's old high.


The market is "high" because there's little opportunity elsewhere to put money. But I don't see any bubble - except in certain stocks. Go back to the P/E of your stocks and see where they are individually. That's a price to earnings multiple. I would call the market "normal" if the average P/E was about 17 ish. The current P/E is at 20 so slightly high. But you have to look at this as a WORLD market.... and money flows to safety and return. Right now - the USA looks pretty damn good compared to the rest of the world.

[GregWeld]

Here's an interesting look at P/E's -- Shiller P/E -- historical S&P price - etc.


Click across the top of this page to see various charts for their historical relevance.

You'll see the big blowoff top of 1999 -- the P/E was 44 !! That was the heyday of IPO mania and instant millionaire and back to the bread line... LOL The equivalent of the housing flipping market. Where EVERYONE you know was talking about buying houses -- back then -- the grocery store clerk told you about their day trading account...



http://www.multpl.com

[ironworks]

So I'm just a 39 Year old guy trying to set up his retirement. I don't have much in the pot, yet. But at what point might some one realize they are throwing good money after bad?

Example. I bought into BPT early last year. At like 85 bucks. Today its at 48. I bought a bunch more at like 59. I have had a nice dividend improvement. So when oil comes back it seems I will have more shares. I'm getting ready to buy some more shares this month with me monthly payroll contribution. And I wonder should I buy more shares or is there a point you hold out for what you have.

I live in oil country and it sucks here currently. So its not just BPT that is struggling. My KMI and NBR is struggling. They have not recovered and continue to drop.

Can you give us some more lessons on the different evaluation numbers you talk about? Where exactly to find them.

I know oil will come back, it has to. But is there a point of just waiting it out more even though you can't time the market. I know the previous high was alot higher then 85 I can get my money back and more some day maybe in a long long time. Which is the plan anyway. Right?

[GregWeld]

The richest people BUY MORE in bear markets than they do in BULL markets...


They're smart enough to understand the theory of buying low and selling high... and generally have been around long enough to have lived thru the PAIN of down markets... and the thrill of then seeing what they bought gain (the opposite of pain) in bull markets.


To categorically state "oil will come back - it has to".... is wishful thinking. We just don't know that. We'd LIKE that to be the case - but we can't make a statement like that. There are too many variables -- mostly boiling down to SUPPLY and DEMAND. The supply has increased - and currently - the demand is down. When that corrects is anyone's guess.

That <above> is why people are urged to DIVERSIFY.... lest their big "bet" doesn't materialize.

I currently have about 2.4 million invested in "oil" - pipes - gas.... APU - BPT - COP - KMI - ETP.... combined the dividend stream annually is $185,000 from those... and like most everyone - I'm underwater on a few (I've held most things far longer than many on here). I just bought MORE COP.... and last month bought more APU... but I also own LOTS more stocks outside the oil patch - as well as commercial real estate. My point?? I have to believe that I'm getting a decent return on my investment while being patient and "hoping" they stop falling at some point - and turn around.... but it's the $185,000 annual dividend income from them that helps to bolster my psyche in the meantime.

[sik68]

The Schiller PE is 26.5 It's only been that high 3 other times in history.



I should say that I'm still fully invested; but would feel leery about picking up any stocks with high PE multiples in a high PE market.

[ErikLS2]

The SPY is for the S&P 500, not the DOW, just to clarify. Not poking at you Greg, I know you know and just flubbed one, I'm just mentioning it for the newbs. I always look at charts of companies or funds against that because if they haven't beaten it then why be in them really.

Oil is a tough one and like anything else we're just predicting the future. I think use is going to go down, the CAFE standard for 2025 is 54.5 MPG, double what it was in 2011. The oil companies are huge, and generally smart, and will figure it out. I can't help but wonder if they'll have to figure out batteries here pretty soon though. I sure am tempted to buy some CVX (where I but gas regularly) at a 5% dividend, I just personally don't think the stock price is going anywhere for a while and there is some risk that dividend will get cut.

It hasn't gotten any easier with all the ETF's and indexes either. They are where the majority of the money is I believe and often the best of breed stocks will go down in step with the worst of breed because of them.

I still think the best theory is buy what you know. If I would have done that a long time ago with Costco, Southwest Airlines, Snap On, Kroger, Under Armour (among others) I would have done pretty well and I would have felt reasonably safe because I would have picked up on a slide in products or services pretty quickly. I would love to buy some biotech as I think it's pretty exciting what they're doing with immunotherapy these days but I know nothing about it and would have no real idea why something went down all of a sudden (or up).

To me everything seems more on the expensive end than the cheap end but if earnings continue to steadily rise we might have a ways to go. I think when the Fed raises interest rates it will be a boost too, after an initial shock down, because it will instill a bit of confidence that things are finally on a steady uptrend. Ok, I'm done predicting the future

I'm curious, how many of you listen to the conference calls and read quarterly earnings reports of the companies you own stock in?

[Woody]

Originally Posted by ironworks

So I'm just a 39 Year old guy trying to set up his retirement. I don't have much in the pot, yet. But at what point might some one realize they are throwing good money after bad?

Example. I bought into BPT early last year. At like 85 bucks. Today its at 48. I bought a bunch more at like 59. I have had a nice dividend improvement. So when oil comes back it seems I will have more shares. I'm getting ready to buy some more shares this month with me monthly payroll contribution. And I wonder should I buy more shares or is there a point you hold out for what you have.

I live in oil country and it sucks here currently. So its not just BPT that is struggling. My KMI and NBR is struggling. They have not recovered and continue to drop.

Can you give us some more lessons on the different evaluation numbers you talk about? Where exactly to find them.

I know oil will come back, it has to. But is there a point of just waiting it out more even though you can't time the market. I know the previous high was alot higher then 85 I can get my money back and more some day maybe in a long long time. Which is the plan anyway. Right?

Trying to help answer your question about adding more BPT shares. You don't say what percentage of holdings you have in BPT, but one guideline is to not have more than 5% of your portfolio in one name. It sounds like you have other holdings in the energy sector too, so you might want to look at how much of your total portfolio is in energy. To decrease the riskiness of your portfolio, it is important to be diversified, so one holding does not have a big impact should something go wrong. That also applies to being too heavily invested in one sector.

I don't know much about BPT but I just took a quick look at it and one thing that stands out to me is the current dividend yield is 15.16% according to Google. That alerts me to this being very high risk and if it was me I would not have anywhere near 5% of my portfolio in something like BPT. But I may be more risk averse than you.

[GregWeld]

Thanks for the catch Erik!


Oils problem is a positive for a lot of stocks! Think how much savings WalMart must be enjoying - or the airlines - or UPS and FedEx.... The problem with that is you have to be able to see a problem and then figure who will benefit. I'm too busy enjoying other parts of life to be that nimble and you must be early to trade like that.

Originally Posted by ErikLS2

The SPY is for the S&P 500, not the DOW, just to clarify. Not poking at you Greg, I know you know and just flubbed one, I'm just mentioning it for the newbs. I always look at charts of companies or funds against that because if they haven't beaten it then why be in them really.

Oil is a tough one and like anything else we're just predicting the future. I think use is going to go down, the CAFE standard for 2025 is 54.5 MPG, double what it was in 2011. The oil companies are huge, and generally smart, and will figure it out. I can't help but wonder if they'll have to figure out batteries here pretty soon though. I sure am tempted to buy some CVX (where I but gas regularly) at a 5% dividend, I just personally don't think the stock price is going anywhere for a while and there is some risk that dividend will get cut.

It hasn't gotten any easier with all the ETF's and indexes either. They are where the majority of the money is I believe and often the best of breed stocks will go down in step with the worst of breed because of them.

I still think the best theory is buy what you know. If I would have done that a long time ago with Costco, Southwest Airlines, Snap On, Kroger, Under Armour (among others) I would have done pretty well and I would have felt reasonably safe because I would have picked up on a slide in products or services pretty quickly. I would love to buy some biotech as I think it's pretty exciting what they're doing with immunotherapy these days but I know nothing about it and would have no real idea why something went down all of a sudden (or up).

To me everything seems more on the expensive end than the cheap end but if earnings continue to steadily rise we might have a ways to go. I think when the Fed raises interest rates it will be a boost too, after an initial shock down, because it will instill a bit of confidence that things are finally on a steady uptrend. Ok, I'm done predicting the future

I'm curious, how many of you listen to the conference calls and read quarterly earnings reports of the companies you own stock in?

[glassman]

Whats funny (and sad) is i'm a stockholder in CVX and while it adjusts (declines), I'm paying almost the highest i've ever paid for gas (and yes, i buy it at Chevron, i'm paying myself a little by doing that).

I'm not sure, but in the gas companies play, the taxes here in Kilifornia are a great contributor to the higher per gallon prices, and theres lines at the pumps in my region....weird.

Is it suprise and "duh-mend"? or supply and demand? cant remember...




"It's time in the market, not timing the market".....