Investing 102

[Woody]

I think it is a great idea to get your daughter interested this early. I set up accounts for my kids and we sat down together to discuss some companies that they may be interested in being partners in. My son was especially excited to know that he could be a partner in Apple. Just for kicks I set up a compound interest spreadsheet and showed him what his money would grow to in 60 years at different rates of return. He is very excited about being a millionaire. I think you are on the right track with your daughter. Its great that she has already saved that much money at her age.

Originally Posted by Bow Tie 67

Total newbie here when it comes to making informed decisions on investing.

FYI called Schwab today to open an account. I have been with Scottrade for several years and they do NOT offer dividend reinvestment. Yes their trades are $7 compared to $8.95 but my thinking is the free reinvesting is well worth the difference. While talking with Schwab I was informed they are not in it for the fees. Sales talk? or not I'm moving to greener pastures as far as I'm concerned.

Greg the previous post about your thoughts with NLY has my attention.

Thanks guys for all you experience and time.

One last thought, I have been talking with my youngest, she is 18 and has 7k saved, I'm working on her to invest 5k of it in a Roth and forget about it. My thoughts are 5 Best of bread spread through the OIL, Retail, Food, Pharm, and Util sectors. .................. Thoughts? If she buys it, I'll even let her pic the stocks based on what she likes. LOL

[Bow Tie 67]

Originally Posted by Woody

I think it is a great idea to get your daughter interested this early. I set up accounts for my kids and we sat down together to discuss some companies that they may be interested in being partners in. My son was especially excited to know that he could be a partner in Apple. Just for kicks I set up a compound interest spreadsheet and showed him what his money would grow to in 60 years at different rates of return. He is very excited about being a millionaire. I think you are on the right track with your daughter. Its great that she has already saved that much money at her age.

Yes, she is even tighter than I am, LOL. I tried to explain to her that she is only tying it up not blowing it. As far as my older daughter, she is the type who wants to help everyone, great quality, but I would love to make her realize she can do much more if she invests early and wise.

I happen to work for an airline that's been in the news lately. My oldest has consistently said " I want to be an entrepreneur " I have never understood that type of thinking or the risks associated with it. Now I'm starting to realize I should encourage her thinking so she can take control of her own future, vs becoming a pawn in the game of monopoly called life!!

[GregWeld]

Originally Posted by Woody

Greg,

I was wondering what your thoughts are about the NLY earnings report. Revenues increased on a year over year basis, but EPS declined. Also, the dividend for 2011 declined from 2010, which is the first decline since 2006.

Early warning signs to be on the lookout for or does this not concern you? I know they still pay a great dividend, but does the declining dividend worry you at all?

In general, how do you handle declines in revenues and/or EPS on a year over year basis. Does it take more than one yearly decline to cause concern.

Annaly (NLY) deals in mortgages and CMO's etc -- so they basically work on the interest spread... but in the end - they're interest rate sensitive. The guy that runs this is Mike Farrell and he's proven to be a brilliant money manager. However, the mortgage market is a tough one... so it doesn't surprise me that we've seen a reduction in the dividend. It is however still about TRIPLE where the safe stuff resides... so I use it for precisely that. Remember that with that higher dividend comes increased capital risk...

What I tend to do is as stated previously is park money here - so I move in and out. My "normal" position is 10,000 to 15,000 shares. I'm higher than that now because of a recent substantial increase in cash on hand and I hate cash that is just sitting around.

What I do is look at how much dividend I've gotten and will get - and I offset that with the amount of capital depreciation (loss) or gain. As long as I'm ahead I'm happy. However... also remember that I pay very close attention to what I'm doing and have been doing this for many years...

So today -- given my current position - my average cost in NLY is $16.95 a share... and today it closed at $16.55.... I'm okay with that because on balance I'm WAY WAY ahead of this small price difference. My last dividend alone was $14,250. If I take money OUT of NLY - I will check the box "tax managed" for my sales.... so they will sell the LEAST GAIN out first... and when they do that - it actually leaves me with the lower priced shares - which I have a nice gain in. So on balance -- I'm getting the dividend - and I manage my gains/losses in this name (as well as JNK and HYG).

Here's the thing a newb will grow to understand... I don't mind losses... as long as at the end of the year I have an overall gain in my investible dollars... and I've been collecting those dividends... My dividend stream is H-U-G-E...as in beyond your wildest imagination... so if I take a 20K hit in capital on one name in order to pull out 250K or 400K to invest in something else -- it's a total ho hum.... I'm moving money all the time... so it's all just part of the drill.

YOU GUYS can't really think/trade/move the way I (or someone else does) -- because you have to balance out your own accounts and your own needs and goals.

I'm not sure this is answering your question -- but the point is -- I can't tell you what a stock is going to do - today or tomorrow - or next week. What I do know is that NLY is a high risk play - with a high dividend... so I look at that -- it pays $2.28 per year per share... so if I collect $2.00 and the stock is down $1.50 I'm still ahead of the game. It's my bet that the dividend might continue to get squeeze in this name -- or shares of similar companies that do what they're doing. Remember - they don't make anything except a spread on money... and those spreads are subject to the whims of the market. This ain't like McDonalds or Phillip Morse where they actually make stuff... but as long as I'm making almost triple the normal interest rate -- I'm happy --- and I'll be happy even if it's only paying 10% because that's still way above market.

[GregWeld]

If you all never do anything for your kids -- the one thing you should talk to them about is MONEY... Saving - investing - balance the "I wants" with the need to invest... and later have a great case of the "I gets".

Like somebody once told me -- you wouldn't wait unit their wedding night to discuss sex for the first time would you? So showing them that when they get $50 from Grandma for Xmas/Birthday -- saving HALF of it -- and blowing the other half if okay -- but you have to stress the saving is not for spending later on some other "I want". Push this idea when they're 10 or 12 --- and when they're 18 they're going to have some real money.

[Woody]

Greg,

Thanks for the explanation. That does answer part of my question.

But I would also like to know how you look at other stocks such as MCD or JNJ, etc. For example, if next year their revenues and/or EPS declined from this years figures, does that put you on alert that it may be time to put your money elsewhere. Or is a one year hiccup in revenues/earnings alright. I guess I am looking for some guidance on when to get out of a stock that you are holding.

Originally Posted by GregWeld

Annaly (NLY) deals in mortgages and CMO's etc -- so they basically work on the interest spread... but in the end - they're interest rate sensitive. The guy that runs this is Mike Farrell and he's proven to be a brilliant money manager. However, the mortgage market is a tough one... so it doesn't surprise me that we've seen a reduction in the dividend. It is however still about TRIPLE where the safe stuff resides... so I use it for precisely that. Remember that with that higher dividend comes increased capital risk...

What I tend to do is as stated previously is park money here - so I move in and out. My "normal" position is 10,000 to 15,000 shares. I'm higher than that now because of a recent substantial increase in cash on hand and I hate cash that is just sitting around.

What I do is look at how much dividend I've gotten and will get - and I offset that with the amount of capital depreciation (loss) or gain. As long as I'm ahead I'm happy. However... also remember that I pay very close attention to what I'm doing and have been doing this for many years...

So today -- given my current position - my average cost in NLY is $16.95 a share... and today it closed at $16.55.... I'm okay with that because on balance I'm WAY WAY ahead of this small price difference. My last dividend alone was $14,250. If I take money OUT of NLY - I will check the box "tax managed" for my sales.... so they will sell the LEAST GAIN out first... and when they do that - it actually leaves me with the lower priced shares - which I have a nice gain in. So on balance -- I'm getting the dividend - and I manage my gains/losses in this name (as well as JNK and HYG).

Here's the thing a newb will grow to understand... I don't mind losses... as long as at the end of the year I have an overall gain in my investible dollars... and I've been collecting those dividends... My dividend stream is H-U-G-E...as in beyond your wildest imagination... so if I take a 20K hit in capital on one name in order to pull out 250K or 400K to invest in something else -- it's a total ho hum.... I'm moving money all the time... so it's all just part of the drill.

YOU GUYS can't really think/trade/move the way I (or someone else does) -- because you have to balance out your own accounts and your own needs and goals.

I'm not sure this is answering your question -- but the point is -- I can't tell you what a stock is going to do - today or tomorrow - or next week. What I do know is that NLY is a high risk play - with a high dividend... so I look at that -- it pays $2.28 per year per share... so if I collect $2.00 and the stock is down $1.50 I'm still ahead of the game. It's my bet that the dividend might continue to get squeeze in this name -- or shares of similar companies that do what they're doing. Remember - they don't make anything except a spread on money... and those spreads are subject to the whims of the market. This ain't like McDonalds or Phillip Morse where they actually make stuff... but as long as I'm making almost triple the normal interest rate -- I'm happy --- and I'll be happy even if it's only paying 10% because that's still way above market.

[GregWeld]

Originally Posted by Woody

Greg,

Thanks for the explanation. That does answer part of my question.

But I would also like to know how you look at other stocks such as MCD or JNJ, etc. For example, if next year their revenues and/or EPS declined from this years figures, does that put you on alert that it may be time to put your money elsewhere. Or is a one year hiccup in revenues/earnings alright. I guess I am looking for some guidance on when to get out of a stock that you are holding.

Well... like most of these answers - it depends. What caused the earnings miss? Bad product - bad weather - a recession - or crappy management... (i.e., not controlling costs and or inventory).

So it depends on what reason is given for the earnings miss... if it's crappy management or bad product -- I'm hitting the sell button.... if it's a hiccup beyond the companies control - or some temporary setback -- I might buy more!

So it's really the QUALITY of the earnings. Sometimes a company will report real good earnings and you wake up thinking you're the hot stock picker of the decade and you look at the stock and it's sold off?!?!?! IT might be the quality of the earnings - because sales might have slipped or EPS might be the result of an insurance claim or a law suit settlement (where they received a payment that isn't a recurring item). So the "numbers" might look good on the surface but they really aren't once you get out the magnifying glass.

This is where the quality of the management is what is most important - because if they're good managers they'll correct the mistake and carry on... and this created a "buying opportunity" rather than a sell sign.

That's why I hammer that long term chart... 5 and 10 years out... steadily climbing. It's not bullet proof but it's a good indicator. It's also why I say -- if you're a relatively small investor - stick to companies you know... that way if you keep your head on - you might see the problems BEFORE they hit the bottom line. The day I go to the mall and there's nobody lined up at the Apple store - I'm coming straight home and hitting SELL!

[GregWeld]

Can't remember the question about Annaly Capital Management (NLY) but someone asked about a declining dividend... and what to look out for etc.

I did some explanation...

But here's what I want people to look at -- for themselves -- because for EACH PERSON they need to know what they're into -- and why they bought what they did - and how they intend to fit that into their individual portfolios.

Go back and look at a 5 year chart of NLY --- and you'll see a pretty flat chart - with some "wild" swings -- lots of squiggles! But look closer and you'll see that it's a pretty mild move of a buck or two... except in '08 (EVERYTHING WENT DOWN THEN!)... so for me... it's a pretty good place to park cash.

That's why I want you guys to really LOOK at these charts -- because you'll start to see "more" than just a line. It's like doing a tune up -- after you've done a bunch -- you pay more attention to smaller things... You'll also notice that the dividend is all over the place...

[Taylor1969]

Originally Posted by GregWeld

Chris....

Somehow you missed the "GREAT CHART" part of the research...

Go back and look at 3M (MMM) and Glaxo Smith Kline (GSK)... these are not the growth story you need. So what I would do is to look at your choice -- and compare them against other companies in their sector. You really want to TRY to get all of the major components in your picks -- Growth - Dividend - good chart - name/business you understand.

I also think that with 20K to invest - I'd prefer you get more diversity. So even if you just went with 1250 or 1500 per name and spread out a bit more.

You have Coke - McDonalds and Costco.... All good stocks -- but with the size of your account - and your age - I'd try to get some separation. These 3 horsemen are basically in the same 'sector'.... food/retail.

That, and you don't have any higher risk stocks to balance out your steady eddies. Your age allows you to take a little more risk than what you've chosen... and they can really put some octane in your total returns.

So with 20 grand --

choose Coke or McDonalds

Pick a different drug company -- with a better growth story that GSK or at least compare them and see if there is one you'd be just as happy with. You may end up with GSK if it's the one you like.

Ditto this in 3M

I like Costco --- I don't own any -- but it has a growth story and is a really well run company. I just would like to see you have more diversification.

Let's take a look at adding a high yielder -- JNK or HYG or NLY or some other in that category.

Great that you have energy already -- the country is always going to need energy!

Yes I'd follow the same strategy in your 401... You need all the horsepower you can to get you to win the race. You're young. You have time. So treat your 401 and your "new" account as ONE BALANCE -- add them up -- look at them TOGETHER - don't duplicate and don't overlap. IT'S ALL YOUR MONEY -- so diversify and think of them as ONE account when looking at them.

Remember --- I'm (nor anyone else) is here to pick stocks for anyone... We're really discussing what to think about and how to look at them.. so please don't feel I'm dissing your choices... you're on the right track but let's look a little more and then post up what you're thinking... and maybe where you're at in the 401 (names so we can look at it all - and feel free to use PM if you're not comfortable posting this stuff publicly).

Greg - thanks for the tips!

Starting on drug company research tonight.

Does BMY look better in your perspective? Seems to have a pretty steady growth and pays out a 4% dividend. Am I on the right track (in your opinion)?

I am trying to think of drug companies that you see everywhere and that is why I hit on GSK (coupled with the current dividend and growth over the last three years it looked okay).

Teach me Zedi master... I need to see dividend checks like yours in the future.

If I am on the right track, I'll look into tech, real estate (CIM a spinoff of NLY?), and the rest of the other segments.

Thanks!
Chris

[James OLC]

Originally Posted by GregWeld

James -

Nice dividend stream - but DUDE <spicoli style> you need some diversification!

However.... I also understand your trade and what YOU understand... and perhaps you even have an "insiders view" of the industry.

Stepping out Greg... Boston Pizza - BPF.UN (TSE) - 7+% yield and a decent chart over the last three years. And it's not oil and gas. I'm looking at it as MCD jr. - most of its value is real estate and it's a good franchise that I kind of understand (at the very least I'm familiar with it).

[GregWeld]

Originally Posted by James OLC

Stepping out Greg... Boston Pizza - BPF.UN (TSE) - 7+% yield and a decent chart over the last three years. And it's not oil and gas. I'm looking at it as MCD jr. - most of its value is real estate and it's a good franchise that I kind of understand (at the very least I'm familiar with it).

OMG! You added another GREASE choice!!