Investing 102

[Vince@Meanstreets]

Originally Posted by sik68

Here's my $0.02 on VLKAY, fwiw.

So far, it has 'only' crashed ~50% since the news was released. The timeline on this recovery is likely very long...it certainly won't be a bounce. So the first opportunity cost question: is there another company to invest in, without the baggage, that could outpace VLKAY?

I'm sure the retrofit of the 09-14 cars will be relatively economical, and the fines will be manageable... I would still be a buyer of their stock if those are the only headwinds they face. BUT the worst thing they did for their business was scare finicky customers. I think their near term sales will be in the toilet (fear) and long term sales will suffer (conquest sales by other brands). The PE will get back to normal... but it will be due to the E.

That says, if it goes substantially lower (another 20%?), I'd think I'd be a buyer.

I think this down turn will be short lived since heads are getting chopped and Porsche will take the leads for some time. It will drop further as soon as the news comes out on how many vehicles were affected and who was involved. Just this morning they reported that cars overseas had "issues" too.

Good buying long term opportunity sure. Typical over reaction, reaction then recovery cycle with a scandal. For me im a chicken chit investor, I avoid the auto industry because there are so many outside influences that can "modify" the prices.

[GregWeld]

Originally Posted by Vince@MSperfab

I think this down turn will be short lived since heads are getting chopped and Porsche will take the leads for some time. It will drop further as soon as the news comes out on how many vehicles were affected and who was involved. Just this morning they reported that cars overseas had "issues" too.

Good buying long term opportunity sure. Typical over reaction, reaction then recovery cycle with a scandal. For me im a chicken chit investor, I avoid the auto industry because there are so many outside influences that can "modify" the prices.

Autos and houses are "CYCLICALS" == they're boom and bust... I've always avoided both of these. The unions strike -- the sales lead changes depending on who has what car (take the Mustang outselling the Camaro with the latest model)... Like Vince -- I see this as a major misstep as far as management goes -- but that should be shaken to the core... and a company like this should be able to recover. Many Mia culpas... will be offered -- fines paid -- lawsuits settled... and two years from now you'll have forgotten all about this little fiasco (hopefully).

[ErikLS2]

Two years might be optimistic, but then I haven't really done any research on this, although I am a tech in the industry. What VW is going to have to do at a minimum is put out a software flash for the computers in all of these cars, which requires a test by CARB to be certified. That takes time, and think there will be any scrutiny over the new software???

It can also be expensive I understand to get approved. Installing it into the car is relatively simple and since it only affects it during emissions testing, other components that sometimes also have to be replaced during a re-flash, probably wont have to be.

Just heard today that regulators in EU are looking into it there, where there are a many more diesel cars than here and just ask Google and Microsoft about European regulators.

With a 4+% dividend right now there is already some "yield protection" protecting it from probably much bigger drops as it's getting to the point where the yield is so attractive that the price can't go much lower (providing they keep paying the dividend). Who knows, but I'll be watching closely, good one to go to school on, that's for sure.

[GregWeld]

This is what I think is good for Investing 102 --- Watching how these things play out - and how you think about them.

GM (GM) had the "ignition switch" debacle... Toyota (TM) had the "runaway throttle"...

GM is DOWN 13.9% on their 5 year chart (yet they pay 4.88% dividend) and TM is UP 63% for the same period (they pay 2.75%).... WOW!! I'd have never thought there was that much spread.

[Vegas69]

I've owned a modern GM and Toyota. I can tell you exactly why...

[Vince@Meanstreets]

Originally Posted by Vegas69

I've owned a modern GM and Toyota. I can tell you exactly why...

comparing a Prius to a Caviler is hardly fair Todd.

[GregWeld]

Originally Posted by Vegas69

I've owned a modern GM and Toyota. I can tell you exactly why...

Originally Posted by Vince@MSperfab

comparing a Prius to a Caviler is hardly fair Todd.

Oh...... that was a direct hit! LOL

[ErikLS2]

Originally Posted by GregWeld

This is what I think is good for Investing 102 --- Watching how these things play out - and how you think about them.

GM (GM) had the "ignition switch" debacle... Toyota (TM) had the "runaway throttle"...

GM is DOWN 13.9% on their 5 year chart (yet they pay 4.88% dividend) and TM is UP 63% for the same period (they pay 2.75%).... WOW!! I'd have never thought there was that much spread.

Toyota paid out $200+ Million to settle it's issue, and there was never really a proven documented case of unintended acceleration. An even bigger problem is the 85 lawyers who filed the class action lawsuit got $227 million. The plaintiffs who those lawyers filed the suit for? Yep, they collectively got $395,270. Couple years and it was all over with.

GM tried to cover up their issue for more than 10 years and during that time marketed their cars as "safe". It's costing them at least $900M.

And, I still hate Prius-es!

[Sieg]

FWIW: A market perspective client letter from a fund manager I deal with:

As you are aware the past three months have been very difficult for stocks. Given the current environment, we thought it would be helpful for us to share some of our thoughts on these recent market developments.

In early to mid-August, we were reminded that stock market corrections can occur quickly. Global markets retraced most or all of the year-to-date gains and volatility increased significantly. Then September came and although many of the underlying market currents didn’t change, the headline indices regained some of that lost ground. A small group of large stocks (Amazon, Google, Netflix, Facebook, and Chipotle Mexican Grill, to name a few) which have outsized effects on the indices, drove a significant portion of the recovery. Unfortunately, in order to match or exceed this type of index performance, an investor would have to make a few, highly concentrated bets. Our preference remains on running well-diversified portfolios, which are not rewarded in these types of environments.

Many studies on the historical and current divergence between growth and value oriented investing arrive at a similar end point: value-based investing has historically produced superior returns. But we are currently in a period in which markets have flocked toward growth. As the accompanying graphic shows, the year-to-date performance (through Sept. 24, 2015) of several Russell® indices reinforces the current situation. Consistently, across market capitalizations, the growth category returns are essentially flat while the general (core) returns are negative and the value category returns are more negative, still.

Not surprisingly, uncertainty remains the only certainty at this time. Market participants continue to weigh the potential effects of an eventual decision by the Federal Reserve to raise the benchmark interest rate, the collapse of commodity prices, global economic health and market valuations. Third quarter earnings, a key component of the past six year bull market, are expected to be less robust than last year. Currently, it appears that this is a temporary issue, but is one that warrants close attention. Ultimately, we expect these higher levels of market volatility to remain in the near to intermediate term. Importantly, it is in this market environment in which stock picking is rewarded.

Believers in mean reversion, like us, expect the environment to eventually return to normal. More important is that we maintain our value discipline. We have been through these type of markets before. In the short term, they are painful, but in the long term our clients have been well served by staying the course.

[GregWeld]

You'll learn a lot more about yourself - and investing in general when the markets are poop -- than you ever will when the market just goes up every day.

You'll learn about time. Remember that money you were saving and "didn't need" for awhile (2 or 3 years perhaps).... You'll learn about diversity, and how one or two names in your portfolio are the only thing keeping you somewhat afloat... You'll come to understand why earning some money on your money is really important when the growth of the share price IS NOT there... You'll find you look at your portfolio a lot less in bad markets... this is especially true if you own great names... You'll come to understand all my "gambling" statements if that's what you've done...

And when it snaps (or crawls) back... you'll think how lucky (smart) you were to have been acquiring more shares all along the twisty, winding, route the market takes.