Investing 102

[GregWeld]

We've discussed strategies for "averaging down" positions... we've talked about NOT trying to "catch a falling knife"... and about how just continuing to buy additional shares in companies you already own - but are down from your original purchase - eventually can work out quite nicely.

Oil investments a year ago looked smokin' hot.... today - anything with the mere mention of oil has tanked. This happens from time to time. Banks and financial institutions were the last ones to tank back in '08 and '09 during the great financial melt down. Some still haven't recovered fully (AIG etc). Autos such as Ford and GM were taken to the woodshed...

When you think about it -- Oil - Banks - Autos - these were safe investments. These are some of the biggest companies in America! My point? It's why we DIVERSIFY! You just never know what's coming down or when or why.

NOW ------ "Big Pharma" is in the hot seat.... and I got a little chuckle to myself when I read that Bill Ackman has taken a 2 BILLION dollar loss (so far) in Valeant (VRX).... and even more laughter from me when he did a classic "I'll take a stand" and bought 2 MILLION more shares when it got hit hard. Now -- here's where we can use this example for Investing 102....

Valeant was already one of the hedge funds largest holdings..... a "short seller" comes out with a very negative report about the company and the shares tank... BLINDLY Ackman takes a stand and loads up on more shares.... only to have the shares continue to tank even harder. What did his stand net him?? An absolutely massive loss.

Don't do this! Ever! Never feel like you absolutely know there's a buying opportunity to be had on this "dip". Stand back -- let the events play out.... if you already have a loss.... don't add to it by buying more shares! Just wait! Make sure you know where the company involved is going - get the facts - wait it out. If the news gets worse - you might decide to go ahead and take your lumps. Move on and invest in something else. If the news gets better... then time might make you whole... and if the news is better - THEN you can add to your position to bring your average down.

This scenario is DIFFERENT than when an entire sector is in the dumper.... There are many fantastic buys in the oils/oils related - the troubles are not company specific... there isn't "fraud" or "mis-doings" going on. The Banks got in trouble as a group... and there were some really good buys to be had during that period.... Bank of America (BAC) or Wells Fargo (WFC)... that long term will be fine.

I'm thinking back to our discussion of whether or not to buy Volkswagon (VLKAY) over the diesel emissions "wrong doing". I think it might be a buying opportunity --- but there was no reason to buy the day the news broke.... They stock is down - probably will stay down for awhile -- so why rush? Wait until there is better news... the fines have been levied... a fix is figured out and the management sorted out. THEN maybe it'll be an opportunity. My point is -- don't try to be a hero... THAT is gambling.

[GregWeld]

Per the above post --- it will be interesting to see what happens with Chipotle Mexican Grill (CMG) tomorrow --- after the news of E.Coli in it's Washington and Oregon locations.

Here's why it will be interesting --- this stock is one of those "priced for perfection" stocks we talk about.... and the stock is volatile to begin with. So watch to see if this is a fantastic opportunity to get a great growth story at a nice discount -- or if the stock sells off and stays down for a couple quarters... because events like this can change peoples "habits" and the consumer is very fickle! We won't know that until it plays out. The chain may have a supply chain problem -- or it's efforts to be organic don't work well in a fast food chain like this.... We just don't know. Either way - it's of interest to learn from and you should GUESS what you'd do --- then see if it goes your way.

[Vince@Meanstreets]

Originally Posted by GregWeld

Per the above post --- it will be interesting to see what happens with Chipotle Mexican Grill (CMG) tomorrow --- after the news of E.Coli in it's Washington and Oregon locations.

Here's why it will be interesting --- this stock is one of those "priced for perfection" stocks we talk about.... and the stock is volatile to begin with. So watch to see if this is a fantastic opportunity to get a great growth story at a nice discount -- or if the stock sells off and stays down for a couple quarters... because events like this can change peoples "habits" and the consumer is very fickle! We won't know that until it plays out. The chain may have a supply chain problem -- or it's efforts to be organic don't work well in a fast food chain like this.... We just don't know. Either way - it's of interest to learn from and you should GUESS what you'd do --- then see if it goes your way.

That was one of the IPO's I had passed on. Co-worker is heavy on IPO's and sub penny stock. He said, gotta jump on Chipotle. I said "Who?" LOL

He's 41 and pretty much retired. Last I heard he was travelling by motor cycle in Europe.

I don't like trendy stock cause these new stock guys are not very loyal. Little wake in the water and they jump.

[GregWeld]

With the markets just bouncing around -- up one day down the next -- so sectors decidedly in the red ----- I would urge you to go back to basics when you're "concerned" about your holdings.... in other words -- pull up those longer term charts and look at them. There's MANY ups and downs - big and small.... but do you see the line that generally is going up over time. That's the line that's important! In the meantime - if you're collecting dividends... then stop worrying. Remember when I reminded everyone to remember when their stocks were going up every day? Now's when you need to remember that.

If you were in real estate 10 years ago you couldn't believe how much your stuff was going up! Then '08 hits and your holdings were worth half what they were... 5 years later - they've doubled or more.... Don't you wish you'd have bought some stuff when it was HALF what it is today?? Yeah ---- that's what I thought..... LOL

[ErikLS2]

Originally Posted by GregWeld

If you were in real estate 10 years ago you couldn't believe how much your stuff was going up! Then '08 hits and your holdings were worth half what they were... 5 years later - they've doubled or more.... Don't you wish you'd have bought some stuff when it was HALF what it is today?? Yeah ---- that's what I thought..... LOL

HaHa, thanks for reminding me of selling at the peak time in 2006 and then foolishly thinking I HAD to do a 1031 (because the worst thing is paying taxes) making a huge mistake for the wrong reason. I've now learned, if I'm paying taxes, then I must at least be making money.

[GregWeld]

Here's why I like DIVIDEND INVESTING.... and once again I'll remind everyone that this is simply ONE example. It is not a recommendation to buy or sell or anything else. It's just that things jump out at me (typically in the morning) and I think it's worth posting....


Altria (MO) paid .38 (thirty eight cents) quarterly dividend 5 years ago --- today --- they pay .56 (fifty six cents) per share per quarter.

If you'd purchased 5 years ago - you'd have paid somewhere around $24.... So using that cost basis -- you're now collecting $2.24 per share per year.... quick math would show you are collecting almost 10% per year on your cost basis. Not bad when compared to the .25% you might get at the bank.

[GregWeld]

As we approach the end of the year the talk about an interest rate hike from the FED is growing louder and louder. That remains to be seen. All I know is - I wouldn't want to be one of the folks at the table that must make that call. Personally -- I don't get any sense that the economy in the US is good, great, or just plugging along. Generally you get a sense for how things are going from the earnings reports. What I've seen (and I watch this daily) is one guy is going great and the next one isn't. Amazon is killing it - Macy's is getting killed. Which one is the "meter"? I don't know.

Here's what I DO think... and this is just my thoughts. When the FED raises rates - while I don't expect much of a raise - that's basically a giant redistribution of wealth. What do I mean by that? It means that EVERYTHING that is interest rate sensitive will be raised - which means that everyone will pay more for everything. Housing - Autos - Communities that float a bond to fix streets or build a library - EVERYTHING. That means money flows out of peoples pockets and goes somewhere else.

The question is -- is that a deal breaker? If you weren't offered near zero rates on your car purchase - would it affect whether or not you did a deal and bought a car? Or a house? Or? Good question to ask yourself. How tight is your budget? If your house payment jumps $200 a month.... is that a shock?

I just bought a new snow blower for the new house. I have a HUGE driveway due to the Fire Department requirements... that's neither here nor there... except that I live in the mountains.... where it snows.. it can snow daily or it can snow deep. You wake up and there's 12" dumped overnight. I don't want to wait until mid-day to have a guy come plow me out... and I'm a do-it-yourselfer kind of guy. My best friend owns an excavation company and they switch from digging dirt to plowing in the winter. He talked me into buying a Bobcat with a 62" wide snow blower mounted on it. Why am I telling this story?? Because I was offered either 36 months at 0% -- or $1,000 off to pay cash. I'm a cash buyer and took the discount.... but many might take the 0% rate - essentially then - you'd be paying $1,000 worth of interest but people never do that calculation do they? LOL Now.... if you're like me - I've become quite used to seeing these zero rates offered on a variety of things. Will we balk at the purchase when these go away? Will we bargain harder for a larger discount as compensation? Will we not be simply "spurred on" to buy at all? Or will we not buy because suddenly everything we already own is costing us more out of pocket monthly?

In the end -- rising rates will mostly hurt those that can afford it the least - the middle class... They're also the ones that - because of the law of large numbers - buy the most "stuff". So what will that do to the economy?? So far they've (we all) have gotten a nice refund due to the low cost of energy.... (it's killing my energy investments)... but what happens when that cost starts creeping back to normal ($3 gas?) and your house payment takes a jump - and then your car needs replacement... and that is now 4% rate instead of zero....

I think our next debacle will be INFLATION. We'll need to really be keeping a keen eye on what - if any - affect that will have on the shares we own. I'm not saying you start selling - or buying or do anything. I'm just talking out loud and saying my ears are perked up - my radar is on.... I want to be proactive. If I'm looking to add to positions or buy new ones - should I be taking this into account going forward? In other words - would rising rates hurt housing - which hurts Home Depot (HD)?? I don't know - but I want to pay attention.

[glassman]

So as i've been keeping an eye on the inflation from a wholesale perspective, my cogs have gone up 34% in a year!!!!! WTF you might say, #1 there are people much smarter than me up top figuring out the increases, #2 rates of glass (in my industry) have fluctuated up and down since the 80's, but haven't moved a whole lot up (till now) #3 demand for our "sheet" product is through the roof ( i'm suspecting solar photovoltaic, but nobody's saying)....so yeah, inflation.

so we as the little guy are getting squeezed, taxes are up, labor costs and benefits are up, but so is volume (waaay up for us). So i'm focusing on volume but it will be the first to take a hit if the economy takes another hit (hence diversifying my product base)....

Good stuff guys....keeping this thread interesting....

[ErikLS2]

Inflation isn't such a bad thing, if there's wage inflation to go along with it. My concern is that many companies have gotten away with no real raises for so long that I think a lot of people are used to it now.

Personally I think they're going to raise, and then watch. They've been artificially low so long I think it's ultimately hurt everything more than helped. Stock market at basically all time highs at more or less reasonable valuations and interest rates still at 0%? What if there's another crisis, they don't have any tools left to deploy really, we could really be in trouble then.

[Vince@Meanstreets]

Originally Posted by ErikLS2

HaHa, thanks for reminding me of selling at the peak time in 2006 and then foolishly thinking I HAD to do a 1031 (because the worst thing is paying taxes) making a huge mistake for the wrong reason. I've now learned, if I'm paying taxes, then I must at least be making money.

Oh man I have stories....losing $300K to avoid a $95K tax hit. Yeah, I was still scratching my head. And that is only one I have witnessed. Better to put it aside or make it work.