Investing in stocks

[Phantom Warrior]

I played around with my tax withholdings (to bring them more in line with my actual situation) and now find myself with an extra couple hundred dollars a month.  I have a couple of ideas regarding what to do with it, but one I am considering is beginning some judicious stock buying.

I'm looking for good long term picks, not something I can buy, wait for a quick jump and then dump for a fast buck.  I'm not sure what of think of individual stocks as a strategic choice, but it's something I'd like to get into a little bit.  For educational puposes, if nothing else.  

McDonalds is my first choice.  I worked for them for a number of years and they are a company I'm interested in owning a part of.  I also think they are stable and have a sound business plan.  Beyond that, I'm looking at stocks like Coca-Cola, Texas Instruments, Microsoft, Apple, and others.

I'd like to get into no more than one to three stocks (including McDonalds).  What stocks have you found to be reasonably profitable and been glad you bought?




I'm aware that stocks should be just a part of my financial planning.  I'm already socking away money into mutual funds and putting 10% of my paycheck into TSP.  Yes, the money I'm putting into stocks is money I can afford to lose.

[280plus]

UTX has always been a good performer for me.

[Telperion]

The problem with this kind of thread is that people are going to come by and say things like

UTX has always been a good performer for me.

or

McDonalds is my first choice.  I worked for them for a number of years and they are a company I'm interested in owning a part of.  I also think they are stable and have a sound business plan.

This is just wonderful but not very helpful.  Will UTX continue to perform (and outperform the market), and why?  Why is MCD stable and what is their business plan?  Stockpicking isn't about one-sentence justifications.  Read some works by successful stockpickers like Peter Lynch and Warren Buffett and understand how they think about stocks.  When you find a stock you like, pretend like you are giving a presentation to one of these guys on why they should buy it.  Anticipate the kind of questions that they'll ask.  You could even make it a real presentation.  Deliver it to the most hardcase analytical person you know, and see if they're ready to open their checkbook by the end.

[French G.]

Agreed, asking what stock to buy is marginally better than asking someone else to select you a wife. To continue that, you can have your buddy introduce you to a nice lady, but you had better handle the introduction, exploration of past histories, test driving etc, yourself. Likewise, you don't break out the diamond on the first date, don't drop all of your money on the one great stock you just found ("She's a nice girl.....).  Furthermore(I'm having way too much fun with this ), a popular stock much like a popular lady may have recieved to much attention from others to give you much future performance once you get in. And finally with both there is the bad break-up when reality sets in.  

    I will freely admit I have no formal education in finance. I have about $4700 in play money right now in stocks. I have quite the chunk of real estate equity and TSP for safer investments. I find stocks in many ways, mostly reading financial news. I start to get interested when a large American company takes it in the shorts on quarterly earnings. Or a large company gets sued. Basically I am a vulture, looking to pick up stocks others don't want, yet that they will want in the future. Any time I get interested in a stock I write it down, what got me interested, and I watch it for awhile, even if I don't have money to buy. Stock watching helps confirm my decision making process, I am getting pretty mad at myself, all the stocks I should have bought 2 years ago are raging now. That helps me have confidence in me. So, back to relationships, know thyself. How you like to buy, your goals, fears, tolerance for risk and worry. I read something the other day that says most investors fear loss twice as much as they get pleasure from gain, so a 20% loss will influence their stock decision making way more than a 20% gain. So, they hold losers, and sell winners.  Decide your loss limit before you buy. Evaluate a loser, is it time to sell, or is it temporary and time to buy more?

 Example, I have bought Intel for a few years, right now my average cost is about $25 a share. Trading at $20 right now. I think it is going to go pretty strong this fall, so I am holding, wish I could buy more.

I recently did some remodeling to the portfolio,

Bought GNA yesterday at $10, solid bet based on earnings and sales, a young public trading history, I am somewhat speculating on the next earnings report, but if it drops I'll buy more.

Freeing up cash to buy TLM, I think it is going to tear thing up the next few months. Oil that doesn't come from the sandbox, what is not to like? A departure for me, the stock is not out of favor right now, but with favorable analyst recommendations aplenty, oil stocks doing well, oil not getting any cheaper, an earnings report in two weeks and a 3 for 1 split in a month I think the time is now.

I sit on a small position of Sherwin williams, SHW. I impulse bought $500 of it the day a lawsuit went against them, I was up 20% in a week and remain there once people saw how dumb the lawsuit was and punitive damages were denied. (I have bought and sold Merck recently too, and may buy again. I love lawsuits). The more I look at SHW's historical performance I want to buy more. Solid, unexciting company, they make money, and paint on the side apparently.

Another good bad news move was Du-pont, DD, I bought some when it was depressed by Katrina based worries, A great stock for buy and hold, I will probably buy back in the near future.

Did similar in and outs on LXK and NOC, based on bad news, got some good money and in NOC's case dividends along the way, got out.

Those make up for some bad moves, such as holding Home Depot in 2003 at $21 a share and cashing out at $25 because I had to pay bills. Don't do that, have extra money for stocks, extra savings for when the car breaks. HD now trading $39-40. Looking at the 5 year chart, damn did I ever buy at the right time, Jan 2003 to be exact. Doh!

Most of my bad stuff has been that, selling too soon because I needed money in the real world. That is like having to buy baby formula with your poker chips. All in all I am up about 5% for my stock investing life, not too bad for my self taught stock market school. I am now transitioning my plan where I reinvest earnings from my quick moves(1-6 months, not day-trading) into long term picks. Preferably once again big american companies with a good DIVIDEND, in an online account that has free dividend reinvsetment. I will continue to spend some of my money on short term buy and sell, I learn a fair amount doing it and it suits me since it apparently is more legal than online poker and blackjack.  Same basic principles for me on the short term deal, are the odds in your favor(solid company, likely to rebound), can I afford to lose my bet(Scared money makes no money).  

  What I am trying to learn now is more chart reading, I read the earnings filings now of anything i am interested in, I am also trying to start looking at Price/Book ratios and Price?Sales ratios as a gauge. Not ignoring P/E, just looking at it less. I am also trying to learn to use stock screeners to find potential buys.

So, in the end, don't date your buddy's girlfriend. Anything I may know or think I know, or like means squat to you. Any recommendation, look it over yourseld, decide what is right for you, learn from your mistakes and keep a journal.  And have fun!

[Art Eatman]

Over the last several years, the recommendations of "Strategic Investment" have been accurate.  IMO, they're worth the $100/yr for a subscription.

Commodiity companies are the preferred sector.  

All these companies are up since their entry in 2004, 2005 and 2006, with "buy" recommendations:  Bunge Limited; Kennametal; Valero; Peabody Energy Corp.  Easy enough to check them out via Google and do your own due diligence.

Valero (oil company) was already pretty much vertically integrated, and they're now buying into mom'n'pop filling stations along I-10...

Art

[Phantom Warrior]

Interesting food for thought so far.  Here's another question.  How do you go about buying stocks?  McDonalds has a direct investor program, so that's moot.  But say I wanted to buy UTX or LXK or NOC or whatever.  I'm not planning to make a great many trades or deal with large amounts of money.  So $15-20/trade is a nonstarter.

[Telperion]

Here's a personal example of successful stockpicking.  For completeness, I'll mention the company (First Cash Financial/FCFS), but what's important is the research and process that went into it.  I discovered this company in an article on CNN/Money that described the company as a good value with growth prospects.  It seemed worth a look, so I pulled up the company's financials on my brokerage site.  Their balance sheet was rock solid with only small debt that was being aggressively paid off.  Their income and cash flow statement showed this company raking in money, while their costs remained reasonable.  In summary, the valuation looked exellent.

Institutional ownership was low, meaning the mutual fund managers hadn't found out about this stock yet.  Only 2 or 3 analysts were paying attention to the earnings, and none of them bothered to write a report.  As a plus, the company (even their name) was boring.  They run pawn shops and paycheck advance services -- where's the excitement in that?  This was beginning to shape up like a real opportunity: a way to get in before Wall Street did.

I did some more research over the next couple of weeks and was convinced this company was serving a market that many others were not and had an excellent opportunity to grow.  I did have some questions, so I called up the company and asked to speak with investor relations.  The guy who answered my call introduced himself and his name sounded familar.  I looked down at the company's financial report and see his name; I was speaking to the president of the company.  We chatted for about 15 minutes and I was pleased with the answers.  The next day I placed my first order.

Since then (about 3 years ago), the stock has split twice, going up nearly 400%.  The mutual fund pros now own a much larger chunk of the company, and six analysts are watching the stock and writing reports.  Now I just wish I had more to invest back then.

[280plus]

I'm merely stating fact when I say UTX has been a good performer. I've owned some since 1998 and have been tracking it and excepting the major crash it took right after 911 it has performed solidly and has consistently outperformed the market. Check the charts and you'll see what I mean. http://finance.yahoo.com/q/bc?s=UTX&t=my&l=on&z=m&q=l&c=%5EDJI Will it continue on this trend? Your guess is as good as mine. Would I suggest someone taking a few thou and plopping it down on UTX for the long position? Given it's past record, sure. Do I have any other hot stock tips for you? Nope.

[French G.]

As far as buying stock, try an online broker like E-Trade, Ameritrade, Scottrade, Sharebuilder, etc. I use Sharebuilder Basic right now, no subscription fee, their money market rate is better than your bank's savings account rate, kinda pricey for real-time trades at 15.95, 19.95 for limit orders. They have free dividend reinvestment(most do) and they also offer scheduled buys on Tuesdays for $4 a trade. You can set those up recurring to buy X dollar amount of shares every month or you can use it one time. The price structure is to try to push their business model of long term dollar cost averaged investing. I don't do much auto investment, but if I want a stock on tuesday $4 is pretty cheap. Overall I like the service. Most online brokers also have the option to establish a separate IRA account, I am thinking about doing one to just buy long term stocks with good dividends, and be a little more mercenary with my regular account.

280, I certainly wasn't picking on you with UTX. If you bought in '98 you should be happy.


On an unrelated tangent, would anyone want to buy Google now? I would have at the IPO, and I may after the big crash, but it sure is out of hand to my mind.

You mentioned Microsoft. A pretty unexciting(read safe) stock in a range of 23.5 to 30 for the last 3 years. It loses 10-15% on bad news and quickly recovers. As it was off $3 friday on earnings and forecasts it may be time to buy soon. But hey, I am a vulture, I am trying to decide when to buy some Ford.

[280plus]

280, I certainly wasn't picking on you with UTX. If you bought in '98 you should be happy.

I know, it was tele's comment I was taking exceptiuon to. Not a whole LOT of exception mind you but I just want to make sure people know I'm not pulling that one out of my nethers, if you know what I mean...  

And YES!! I'm pretty happy with it.

[The Rabbi]

The best investment is in yourself.  Buy good books and periodicals about companies and investing.

[Justin]

If you're looking for good, long-term performance in a conservative investment, consider looking at mutual funds.

Find a professional who can help you flesh out your long-term financial goals.

The ROTH IRA is your friend.  It allows you to invest $4,000/year tax free.  (The hitch being that you can't take it out before retirement without getting nailed by taxes.)

Go to your bank, or through your chosen investment person to set up an automatic monthly deduction that gets put directly into your portfolio.  That way you don't even miss the money.  

Be prepared to wait.  It will take a few years for things to get rolling to the point where compounding interest starts to become noticeable.

[Phantom Warrior]

That's an interesting idea, Justin.  I'm into mutual funds to save for law school right now, but I don't have a Roth set up.  Hmmm...

[French G.]

For a fun exercise in how not to invest for the long term you could try this:  http://www.sbfantasyportfolio.com/

Still a day to register. I find it interesting that since the start 4 April I am up only 11% in value but I am right now in the top 6% in the rankings. Not  a snowball's chance in hell of winning, but if I make it to the leaderboard I'd be happy. If I am up 11% and ranked where I am, I figure maybe 20% are break even or better. Lots of crash and burn, which is to be expected in balls to the wall speculation.

[The Rabbi]

If you're looking for good, long-term performance in a conservative investment, consider looking at mutual funds.

Find a professional who can help you flesh out your long-term financial goals.

The ROTH IRA is your friend.  It allows you to invest $4,000/year tax free.  (The hitch being that you can't take it out before retirement without getting nailed by taxes.)

Go to your bank, or through your chosen investment person to set up an automatic monthly deduction that gets put directly into your portfolio.  That way you don't even miss the money.  

Be prepared to wait.  It will take a few years for things to get rolling to the point where compounding interest starts to become noticeable.

In addition to being terrible advice this is also not strictly correct.
The standard IRA allows you to contribute and deduct the contributions and any increase in value is not taxed.  The account is taxed as income when you withdraw it, which can be at age 58 1/2 or something.
The Roth IRA does not allow you to deduct the contribution but it does allow the account to grow tax free and withdrawls are also not taxed.  Apparently you can also withdraw your original contribution without penalty from the Roth.
So do you want to pay taxes now or 30 years from now?
On the other part, why would you want to turn your money over to a complete stranger?

[Art Eatman]

Inflation compounds, just like interest.  If you think inflation is around 3%, as the Gummint tells us, then 4% to 6% is safe and secure and you're a bit ahead.  I happen to think it's closer to 5% or 6%; some folks say more.  Looking at the rate at which M1 has been growing, I think I'm closer to "right" than the official numbers.

Anyhow, certain sectors move up or down with various trends.  Right now, I wouldn't buy into REITs.  I'm more optimistic about a long-term bull market in commodities, although any recession would flatten the curve somewhat.  But it'll be a while before the supply will catch up with the demand.

Trying to figure out what ALL sectors will do is a career.  I tend to focus on a couple of sectors and get in and out as seems appropriate.

We have an aging population.  Thus, well-run nursing-home companies will grow.  So will those companies that make old folks' diapers.  And, the pharmaceuticals that sell into the old folks' market.  Not glamorous, but remunerative over the long haul.

, Art

[brimic]

If you have a few extra hundred a month, or ever $50 a month, I'd put them into an Exchange Traded Fund in the S&P index (Spider symbol SPY is a good one) and avoid mutual funds altogether.  A managed mutual fund isn't likely to do much better over time and always have higher maintenance fees nd more often than not, have front end or back end loads (%based fees for buying or selling the fund).Some mutual funds may perform better during periods of time, but if the sector the fund is in tanks, the mutual fund manager isn't going to do anything smart with your money, like convert some of it to cash and will probably charge you a load fee to get out of it. I've been in that situation before- I made a lot of money in some of the Janus funds in the 90s, but I also put a lot of money in these funds in my 401K plan and watched helplessly as one fund dropped from the high 90s to the low 20s in early 2001, and because of the company plan, I could only move money quarterly I have become very disillusioned with mutual funds because of this.  Another option might be to set up a dividend reinvestment plan (DRIP), but with the ease of internet brokerage accounts, it might be easier just to buy the stock outright yourself.

[Justin]

In addition to being terrible advice this is also not strictly correct.The standard IRA allows you to contribute and deduct the contributions and any increase in value is not taxed.  The account is taxed as income when you withdraw it, which can be at age 58 1/2 or something.
The Roth IRA does not allow you to deduct the contribution but it does allow the account to grow tax free and withdrawls are also not taxed.  Apparently you can also withdraw your original contribution without penalty from the Roth.
So do you want to pay taxes now or 30 years from now?

Whoops.  I was wrong about the Roth IRA.  I done gots 'em cornfused.

On the other part, why would you want to turn your money over to a complete stranger?

1) My stock broker isn't a stranger.  I know who he is and where his office is.  I even know where he lives.
2) He gets off on watching the stock market and making it generate money for his clients.  In the same way that I get a nice little rush of endorphins when I shoot an X, he gets one when he makes a good move in the market.
because
3) In the free market, it behooves a stock broker to know what he's doing, lest his clientelle take their money and move on to somebody who is more competent, or just open an online trading account.

[...has left the building.]

4) Not everyone has the desire/skill/time/etc. to watch their market investments properly.

[...has left the building.]

I almost forgot...

5) No one, and I mean NO ONE, is as talented as The Rabbi.

[Justin]

5) No one, and I mean NO ONE, is as talented as The Rabbi.

*smacks forehead*

Right!

I'm such an Idiot!

Tina, come get your food!

[Art Eatman]

brimic, it's generally the case that mutual funds invest in sectors of the market, sectors about which the fund managers think they're knowledgeable.  To me, it's not "mutual fund"; it's "sector".  That's why I'd do some homework before picking any particular mutual fund.  The question is what sort of stocks are the focus of any particular fund?  

There are index funds as well as stock funds.  All manner of options as to what to look at.

Still, nobody ever got hurt real bad by living frugally and saving some money, regardless of interest rates.  It's just that nowadays, folks believe all that TV BS about deserving it now.  Instant gratification and all that crap.

But don't anybody ever listen to me.  That would be foolish.  I'm so damned dumb I didn't retire until I was 45 years old...

, Art

[The Rabbi]

4) Not everyone has the desire/skill/time/etc. to watch their market investments properly.

Not everyone has the desire/skill/time to do whatever.  But there are two kinds of people: those with assets and those without assets.  Someone can choose to not have sufficient assets for his retirement and so on.  But why anyone would voluntarily choose that is beyond me.  Since people's biggest fear, so I understand, is not having enough money, especially in retirement, maybe you can explain with your superior insight why they would then voluntarily take steps guaranteeing them that outcome.

[280plus]

I'm so damned dumb I didn't retire until I was 45 years old...

Yea. what took you so long?

[garrettwc]

I'm so damned dumb I didn't retire until I was 45 years old...

I only have a couple of years to go. I better hurry up and get dumb faster

I wish