Investing 102

[GregWeld]

Originally Posted by billscamaros

So what are your thoughts on General Mills (GIS) and American Electric Power (AEP)?

GIS - div/yield .31/3.00, P/E 17.29

AEP - div/yield .47/4.53, P/E 12.75 , but doesn't have a distinct rising growth over the past 10 years.

Regarding the Greg and Chad conversation involving taxes .... would you approach the dividend differently in an tax deferred IRA vice a straightforward brokerage account?

Nice yields... and the growth on a good old standby - GIS (General Mills) is outstanding...steady eddy.

AEP (American Electric Power) has been not so hot - but has that 4.5% dividend. My advice -- BUY CON EDISON (ED) has near the same dividend (3.87%) but has capital growth of 40% on top of that... compared to a capital loss for the 10 year period for AEP.

That chart will make you even sicker if you go out and compare the time period "ALL" -- ED is up 900% compared to AEP @ "only" 69%

Just saying -- that if you want to own "best of breed" in any given sector - they're best of breed usually for very good reasons -- and here's a perfectly good example of the difference.


Long time periods for sure -- but here's the way I think about this stuff... I'm 58 already (damn) but I plan to live to at least 88 -- THAT IS THIRTY MORE YEARS -- and I want to have growth in capital to sustain my superior spending spree....

[billscamaros]

Originally Posted by GregWeld

Long time periods for sure -- but here's the way I think about this stuff... I'm 58 already (damn) but I plan to live to at least 88 -- THAT IS THIRTY MORE YEARS -- and I want to have growth in capital to sustain my superior spending spree....

Thanks for putting so much thought into this thread, Greg. It's very timely for me. I'm 52 now and although I've contributed into my 401K for many years, I can't say that I've given alot of thought to retirement. Over the past year or so, I've realized that retirement is approaching in the next 15 years or so, and it's time to fine tune my plans.

I can't imagine not working, simply because I always have. However, I'd like for it to become an option vice a neccessity.

This thread has been cool because it's motivated me to look at my current investments a little more critically, and because it's given me the opportunity to learn something new. In the vein of learning something new, any advice on basic investing books, newsletters, or websites? I'd like to better understand how to evaluate the P/E, yield, etc of different stocks. I thought that the "beta" chat between you and Chad was interesting, but I don't understand the relevance of it in respect to the stock market.

Thanks

Bill

[GregWeld]

Good questions Bill, and I'm glad you've found this interesting. I've been working hard to try to make it EASY (need that big red E A S Y button)....

So along that EASY theme.... I don't use ANY of the stuff you asked about. Don't need it. Don't need to clutter my head with useless info such as the Beta. That - in my HUMBLE (yeah right!) opinion is where people go sideways.

Investing IS NOT COMPLICATED and doesn't need to be "learned". Follow my steps - that I have listed and discussed in previous posts... regarding simple easy to understand "anyone can do this" investing approach. Pick names you know - compare them to the competition - check the long term chart - make sure they pay a dividend - diversify. If the companies growth is steady eddy - then I want a bigger dividend payout. If the stock meets all of the above and has a smallish dividend then it must have stellar growth as the 'offsetting factor'. If I have too many boring smallish payers -- and can AFFORD SOME RISK I offset that smallish dividend/growth with a bit more risk (JNK - HYG - NLY) just for "instance".

Lots of people can argue numbers and such all day long - they pull stuff from here and there... but like a drag race car - can they put it DOWN? I know guys that spout all manor of info about motors and traction etc - but when you line up they get crushed. Some can talk and some can DO.

The important STEPS are to pick - compare - make a list - compare 'em again to make sure you understand... check for diversity... do what your brain says is right for you... if you like CHEVRON GAS over EXXON then buy the Chevron. If you shop Home Depot over Lowes - buy the Home Depot (if all the info is pretty comparable). If you don't do it that way - you kick yourself in the ass when it doesn't go your way.

The guys that listen to the talking heads on TV all the time... and listen to the news and then REACT constantly -- they're getting BEAT. Now - obviously you have to listen for BIG NEWS - let's just pick SEARS.... because if you're in that name (and you shouldn't have been because it doesn't meet ANY of the above criteria) then you need to make a decision to hold 'em or fold 'em... But if you sold McDonalds because the news said someone spilled coffee - and you think that is really going to kill the company - REALLY? - then you're reacting to just "news" and you'll lose.

Whenever I'm thinking too much -- I go back and revisit those charts and stretch 'em out as long as they'll go... and if it's a good chart... and the dividend is intact and growing - then I can soothe myself. If I'm thinking about a pick too much -- and stressing over it - then I go and look at all the stuff - try to remember why I picked it - and if I'm still stewing - I sell it and start looking (may take me days or weeks to find/settle on the new one) for a better INVESTMENT.

It really is just that simple. I'm running mid 8 figures... and this is EXACTLY how I do it. And I kid you not when I say this is just exactly how I've been doing it for YEARS. I retired at 41 and I'm 58 now and this is all I've done for "work" all this time - running my own investments. I've never once looked at a beta... or anything else more complicated than what I just wrote. If it works for me - it will work for you.

[asifnyc]

hey Greg,

I've been glued to this thread as well and wanted to get your take on a stock: SXL. seems to have the right shaped chart with growth and growing dividend.

how do you "read" this one? thanks again for all your insights in this thread and happy new year everyone

Sunoco Logistics Partners L.P. (Public, NYSE:SXL)

Range 38.90 - 39.62
52 week 24.40 - 39.98
Open 39.48
Vol / Avg. 253,411.00/226,762.00
Mkt cap 4.07B
P/E 16.35
Div/yield 1.24/12.59
EPS 2.41
Shares 103.33M
Beta 0.18
Inst. own 24%

link to chart

[LS1-IROC]

What your thoughts on HSY?

Range 61.72 - 62.19
52 week 46.24 - 62.26
Open 62.05
Vol / Avg. 606,311.00/1.09M
Mkt cap 13.91B
P/E 22.86
Div/yield 0.34/2.23
EPS 2.70
Shares 225.12M
Beta 0.26
Inst. own 54%

They have been steadily increasing dividends and they split in 2004. It's my wifes favorite company...LOL

[GregWeld]

Originally Posted by asifnyc

hey Greg,

I've been glued to this thread as well and wanted to get your take on a stock: SXL. seems to have the right shaped chart with growth and growing dividend.

how do you "read" this one? thanks again for all your insights in this thread and happy new year everyone

Sunoco Logistics Partners L.P. (Public, NYSE:SXL)

Range 38.90 - 39.62
52 week 24.40 - 39.98
Open 39.48
Vol / Avg. 253,411.00/226,762.00
Mkt cap 4.07B
P/E 16.35
Div/yield 1.24/12.59
EPS 2.41
Shares 103.33M
Beta 0.18
Inst. own 24%

link to chart

I'd own it - if I didn't already own EEP and KMP etc. Great dividend and excellent growth. What I like to do is to keep the "pigs get fat and hogs get slaughtered" counter balance so don't just go dividend hoggish and load the boat up with all high dividend payers -- balance is key. But good picking here!

[GregWeld]

Originally Posted by LS1-IROC

What your thoughts on HSY?

Range 61.72 - 62.19
52 week 46.24 - 62.26
Open 62.05
Vol / Avg. 606,311.00/1.09M
Mkt cap 13.91B
P/E 22.86
Div/yield 0.34/2.23
EPS 2.70
Shares 225.12M
Beta 0.26
Inst. own 54%

They have been steadily increasing dividends and they split in 2004. It's my wifes favorite company...LOL

This holding - Herseys - would be the perfect counterbalance to the previous stock pick - SXL.... because of the "smallish" dividend it needs (IMHO) to be balanced out with a higher paying dividend of something. Otherwise you're losing out to inflation. But a great name with a decent chart and the only downside is that under 3% dividend.

[68 stang]

Greg,

How often do you suggest us new guys be checking up on the stocks that we own? It seems to me that you can get a little OCD with it all.

How often do you suggest we rebalance our portfolio?

What exactly is a EFT? You have mentioned them before. It appears to me to be more like a mutual fund that buys bonds. Is there a fee for using them? On the EFT JNK, back in January of 11, they paid a short term, and a long term capital gains. Instead of the dividend of being around .25 it jumped to .90. Could you explain this please?

Do you look at the Price to Earning ratio, when choosing a stock? Do you also look at the earnings per share when make a decision?

Thanks again for the wealth of information you have given us.

[GregWeld]

Originally Posted by 68 stang

Greg,

How often do you suggest us new guys be checking up on the stocks that we own? It seems to me that you can get a little OCD with it all.

How often do you suggest we rebalance our portfolio?

What exactly is a EFT? You have mentioned them before. It appears to me to be more like a mutual fund that buys bonds. Is there a fee for using them? On the EFT JNK, back in January of 11, they paid a short term, and a long term capital gains. Instead of the dividend of being around .25 it jumped to .90. Could you explain this please?

Do you look at the Price to Earning ratio, when choosing a stock? Do you also look at the earnings per share when make a decision?

Thanks again for the wealth of information you have given us.

Great question -- and I would say it depends -- because if you're investing in the kind of stuff I've been saying is where my money is - then you don't need to check but about once every quarter... just to make sure you're on track -- but if you're buying some speculative stuff - then daily. Mostly what you need to do is to just pay attention to the news - interest rate announcements by the FED etc...and then if you're not sure what that "means" and the affects it can have then jump up and ask someone.

REBALANCE any time you're out of balance - i.e., you have a big run up in one stock - then take the gain - leave the balance - and spread out (diversify) or if you have a loser - make sure you know why it's a loser and see if it has a chance of coming back or is it 'broken'. I would call the recent announcement of the SEARS closing news - a 'broken' stock. You just have to sell that kind of news and move on.

ETF - Exchange Traded Funds - are NOT like Mutual Funds - but kinda are - they typically are a basket of a sector/type. So lets just say you want to invest in oil and gas - then there are probably several ETF's that just buy that basket of stocks. It's an easier way to buy a few companies in a narrow focus... without having to pick just one or two names. Very effective and cost effective. The downside is that a bad pick can pull down the performance of the ETF... so I'm not a fan. I think people are smart enough to make good picks and are generally happier knowing what stocks they own and why they own them. Just IMHO.

Paying out a special dividend or returning a capital gain - can be done for many reasons and is quiet common in Mutual funds or ETF's... You own the shares of the companies they have invested in - and lets say they owned a bunch of APPLE and they have a 1000% gain and decide to sell some of it in a big way -- they pass that gain down to the share holders... along with paying the regular dividend.

P/E (price to earnings ratio) is not something I pay attention to. I like LONG TERM GROWTH in the price of the stocks I own - and I pay attention to that -along with the dividend payout and the long term growth of that dividend payout. This really tells me all the info I need to know. It tells me the company is well managed - over a long period of time - and that they're making money enough to pay an increasing dividend out - again over a long period of time. Right now Apples P/E is quiet "low" - but to me the stock is "expensive" and priced for perfection. I own it - but I've owned it since it was at $85 and have taken profits (gains) in the name... but it doesn't pay a dividend so I have to have the stock price growth to compenstate which it has provided handsomely. McDonalds has a higher P/E and the talking heads on TV will mention it - but I don't really care about such matters - because what I'm looking for is good management - growth (sales and same store sales - and growth in new markets etc) and as long as they have things like that - then the rest takes care of itself.

It's kinda like two cars - one guy has 1000 hp and one guy has 650 hp -- everything else is the same. Put the two on the track and if you just looked at the 1000 hp number you'd bet on that car to win... EXCEPT -- the driver sucks and the guy in the 650 car runs circles around him. I'd prefer to bet on the management and history over just "numbers". It has to be the complete package - not just one set of numbers. The numbers might be good indicators but if you'd just bought stocks on those - you might make a lot of bad bets. That's not to say you just ignore them - but you're making the entire process more complicated than it really is. I'll harp again and again - names you know - companies you like to do business with - good track record - good dividends - diversified portfolio... (relative to what you have to invest).

Does that make sense?

[billscamaros]

A question regarding capital gains ........

In your example of the stock that made huge gains, and now you want to rebalance your portfolio. Let's assume that you've owned this stock a few years. You sell off some shares off and buy shares in a different stock. So you have fees for the buying and selling. But do you pay capital gains now on the money that you made, or do you not have any gains since you have reinvested those dollars?