One thing you will learn in investing is that nothing is ever absolute and that rules are made to be broken. With that said, I’ve been giving a lot of thought as to what stocks to buy this year and my previous declaration to use the Dogs of the Dow strategy.
As I get closer to actually making a purchase, I’m starting to reconsider my initial plan and may have an alternative solution that would make more sense. Here’s is where my mind is at:
We’ve all heard that stereotypical story about being in line at the grocery store behind the woman who was paying for her food using food stamps while talking on her new iPhone. If you’ve ever encountered this ironic scene in person, than you’ve probably wondered how bad poor people really have it these days. And you’re not alone.
This post was inspired by a recent and interesting article on CNN Money entitled Are you poor if you have a flat-screen TV? In it they quoted a survey demonstrating how poor people in the U.S. (those making less than $20,000 per year) own just as many flat screen TV’s (2 to 4) as the middle and wealthy classes (62% vs 68%). What’s worse is that the survey was taken in 2009 – before prices started really coming down below $1,000 to the low prices we’re enjoying today!
So with the upcoming presidential campaign where jobs and the income gap will be a big deal, one has to ask the question – is social inequality “really” as bad as people are making it out to be?
One of the biggest things that separates individual stock investors and mutual fund investors is how to read stocks and evaluate them on an individual basis. Unlike most mutual funds, individual stocks can carry a great deal more of risk. Pick the wrong ones and there goes your hard-earned money!
So how do we evaluate a company’s stock metrics to know if it will be a good investment? Fortunately, all this basic information you need to understand a potential prospect has been summarized by most major news outlets into single, bite-sized profiles that are convenient for you to access and are constantly updated.
The goal of this post will be to walk you through one of these pages of metrics and explain how to read stocks. For this exercise, I will use a stock that I own, Johnson & Johnson, and a news media that I often use, CNN Money. Keep in mind that you could find similar stock metrics and other variations just as easily on Yahoo Finance, Google Finance, MSN Money, your broker’s website etc. (CNN Money just happens to be the one I use the most)
Darn! The year was off to such a great start for us investors! But then worries about Greece and the Euro spoiled the party. If you were following conventional wisdom and investing in Index Funds, then you’ve basically lost about 6% in May (following the S&P 500).
Don’t worry – I’m not trying to bum you out. But it is times like this that you need to ask yourself “What am I doing to hedge myself? If buying stocks is offense, what am I doing to play defense?”
Admit it. You saw the title of this post and thought what the #@&! is this guy thinking! Is he insane? Who goes and sells one of the world’s most profitable and admired companies?
The truth is that this was not an easy post to write. Having watched the price of Apple stock (AAPL) rise above $600 (about $50 more than what I sold it for) left me wondering the same thing about my decision.
But isn’t that the problem when we invest? We let our imaginations run the show. If we sell, we’ll kick ourselves if stock goes up, but we’ll pat ourselves on the back when it goes down.
It’s the real life “Revenge of the Nerds” triumph story: Facebook will finally be announcing an IPO (initial public offering) making everyone involved unimaginably rich!
For anyone who doesn’t know what an IPO is, it’s when a company sells its stock to the public for the first time. It’s usually a big deal because it gives the company the chance to raise a ton of money while it gives the public a chance to own a part of the company and capitalize of their success.
For example, I could kick myself back in 2004 when Google first went public and sold for $85 a share. This week it closed trading around $596.
But does that mean we should all run out and buy Facebook stock? Even a Goliath-valued company such as that still has its critics when it comes to demonstrating sustainability.
It’s a new year and I’m optimistic that new opportunities are out there. In keeping with that enthusiasm, I’d like to add a few more individual stocks to my portfolio.
Traditionally, I stick with mutual funds to stay diversified, keep my costs down, and avoid the turbulence of the market. However, last year I had a great time with Apple (AAPL) (up 26% from my initial purchase) and I’m hoping I can use the same care and attention to pick another winner.
Going After Dividends
As part of my ongoing initiative to add passive income streams, I’ve decided that my next set of stocks should be dividend stocks. There are a lot of reasons why to look at dividend stocks for my next purchase:
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