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A few questions.

Discussion in 'Ask any question!' started by Alex Griffith, Dec 25, 2018.

  1. Alex Griffith

    Alex Griffith New Member

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    Before I ask these questions, here is what I have:

    About $1300 to invest. I want to be a value investor. Hold for 5, 10, 20, or 30 years depending on if the stock stays strong.

    The idea of turnaround stocks really intrigue me. This is what I had in mind since I'm working with such a low budget, I would diversify more when I have a more expensive portfolio:
    $300 of General Electric ($6.92 at the moment, hoping it falls more)
    $300 of Ford ($7.63 at the moment, I'm sure itll go back up soon)
    $300 of Nokia ($5.49 at the moment, a large contender for 5G technology)
    $400 - Not sure yet

    How would this look? GE is huge, and appears to getting its act together with Larry Culp at the helm, slowly. Ford has had its ups and downs, and it's not even close to its worst. I dont see it falling much more. And Nokia, I dont know much honestly. I know they're one of the big contenders in 5G technology and they've done good in networking and broadband. Their dividend alone is almost enough to make it worthwhile.

    I really dont know how to evaluate properly, so I'm coming here with a few questions:

    1. How do you find information on the fundamentals and management of a company? I can read the balance sheet, but that tells me nothing about the management. All I have it seems is the balance sheet and what analysts say.

    2. Practically everything I read is from the Motley Fool, is there anywhere I can get information without an analyst's opinion?

    3. Should I diversify more? I'm willing to be aggressive, I've got decades to be conservative.

    4. The reason I was avoiding stocks like Apple and Exxon is that compound interest doesnt really work for me if I invest in expensive companies. I make about $300 a month for something on the side. Is it still worth investing in those big companies, even if I lose the advantage of reinvestment?

    I had a lot more questions, I'll edit this when I remember them.
     
  2. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

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    I've got to say, General Electric is a really cool name. It's worth turning around. And they've already got a new CEO.
     
  3. WXYZ

    WXYZ Active Member

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    Sorry, I would not touch GE or FORD or NOKIA. I heard a broker tell a client asking about buying GE......"why would you want to buy a stock that is heading toward bankruptcy". Now whether that will happen who knows, but GE is already a shadow of the former company and I see more distress selling of business segments to come. You will NOT be buying the company that USED TO BE GE. That company no longer exists. As to Ford and autos in general, good luck making money in this business area.

    Your statements:


    "I really dont know how to evaluate properly..."

    and

    "The reason I was avoiding stocks like Apple and Exxon is that compound interest doesnt really work for me if I invest in expensive companies..."

    tell me that you really dont understand what you are considering doing. Especially the second statement. There is no difference in buying a single share of a $1300 dollar stock or buying a number of shares of $7 dollar stocks in terms of compounding. Compounding has NOTHING to do with the price per share.

    You would be better off if you put all your funds in a SP500 Index Fund at the current low market levels and continued to invest in that fund as you get additional money in the future. You will do very nicely as the markets recover and it will give you time to educate yourself about investing. I dont mean this in a negative or mean way, but what you are posting and your questions show that you have a lot of learning ahead of you when it comes to investing. Nothing wrong with that, we all started the same way and we all continue to learn. It is good that you are thinking and asking questions. Whatever you decide to do, please continue to post and let us know about your experiences, that is how WE ALL learn.
     
    #3 WXYZ, Dec 26, 2018
    Last edited: Dec 26, 2018
    rg7803 likes this.
  4. Alex Griffith

    Alex Griffith New Member

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    I will, thank you for the advice. I understand that I have much to learn, hopefully some finance classes and more research will help with that.

    Isnt compound interest reinvesting what you make from stocks? For example, if you get say, 200 shares of a stock that has a $1 annual dividend, you reinvest that $200 to buy more stocks, and then every year (or quarter rather) it becomes even more. If you buy an expensive stock, you wont be able to reinvest hardly.

    Unless what I'm thinking of is completely wrong. If so, my apologies. I need some help
     
  5. stock1234

    stock1234 2017 Stockaholics Contest Winner

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    Maybe you can consider brokerages that allow you to buy fractional shares if you don't have a lot of money to invest at first and can't really afford to buy one full share of stocks like AMZN and GOOGL. They allow to buy $50 or $100 of AMZN instead of 1 full share of AMZN. When you have more money to invest later on then you can begin to buy full shares. I think the biggest issue for these brokerages is that trades aren't executed at real time but rather at beginning of the trading session/end of the trading session. If you are planning to invest for long term and not short term trading though, then I guess not executing at real time won't be huge issue for you even if you might not get your ideal prices.

    By buying fractional shares, then you can participate in stocks like AMZN and GOOGL and you can invest in more companies rather just trying to pick a few. Not saying you should go for this option, but it is an alternative that you can consider ;)

    https://www.m1finance.com/
    https://www.motif.com/
    https://www.stockpile.com/
     
    Three Eyes likes this.
  6. WXYZ

    WXYZ Active Member

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    The reason I said what I did about compounding is:

    In stock investing I consider "compounding" to be a function of applying the "total return" generated by a stock to a period of time. So, if you have a stock that produces a total return composed of the annual dividend, reinvesting the dividend, and the gain in share price of, lets say 10%, you will double your money in 7.2 years. If you had a total return of 20% for 3.1 years you will double your money. That is compounding. This is calculated by using the RULE OF 72's. So it is IRRELEVANT if you own one share of a $1300 dollar stock or 1300 shares of a $1 dollar stock. Look up the RULE OF 72's. Look up total return.Total Stock Return.

    So much of the compounding that occurs with stocks is a function of the GAIN IN SHARE PRICE OVER TIME......not just the dividend. That is why VALUE INVESTORS look for shares in companies that are low compared to the value of the company and the future prospects (fundamental analysis) of the company and its business. Because the shares have the potential to generate better than average price gains going forward.

    EVEN a stock that pays NO DIVIDEND can compound. How it compounds is the value of each share going up. So if I buy one share of a stock for $1300 and a year later the share is now worth $1430, I have made a gain of 10%. If my one share manages to go up an average of 10% a year for 7.2 years, I will double my money.

    Total Return =The formula for the total stock return is the appreciation in the price plus any dividends paid, divided by the original price of the stock. The income sources from a stock is dividends and its increase in value.

    Compound "interest" is NOT what you earn reinvesting the "dividend" from a stock. "Interest" is what you earn on an "interest" producing investment like a bond or a CD or a money market fund, etc, etc. A dividend payment is NOT interest. It is a dividend. A $1300 dollar a share stock with a 2% annual dividend is exactly the same as 1300 shares of a $1 stock that pays a 2% annual dividend. The price per share ALONE has nothing to do with how much you will earn by reinvesting dividends or compounding. Look up the definitions of interest, dividend, capital gains distribution, and compound interest.

    From INVESTOPEDIA:

    "Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

    Suppose you invest $10,000 into Cory's Tequila Company (ticker: CTC). The first year, the shares rises 20%. Your investment is now worth $12,000. Based on good performance, you hold the stock. In Year 2, the shares appreciate another 20%. Therefore, your $12,000 grows to $14,400. Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $2,400, because the $2,000 you gained in the first year grew by 20% too. If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, $10,000 invested at 20% annually for25 years would grow to nearly $1,000,000 - and that's without adding any money to the investment! Interest is often compounded monthly, quarterly, semiannually or annually. With continuous compounding, any interest earned immediately begins earning interest on itself. Albert Einstein allegedly called compound interest "the greatest mathematical discovery of all time." We think this is true partly because, unlike the trigonometry or calculus you studied back in high school, compounding can be applied to everyday life."

    Back to me talking:

    I think they are a little loose in their language above, but the example gives you an idea of what they mean. If it was me I not use language talking about "earnings and reinvesting earnings" and than use an example of the compounding of gains in share price. Main thing is look at the example above that I have highlighted in bold.
     
    #6 WXYZ, Dec 28, 2018
    Last edited: Dec 28, 2018
    Alex Griffith likes this.
  7. Alex Griffith

    Alex Griffith New Member

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    Thank you, WXYZ. That was a very informative post.

    Opening me up to the conclusion that the share price doesnt matter as long as the percentage is the same has made a big difference. I wont limit myself to extremely cheap stocks, I will just look for undervalued stocks. I will look at your post about your porfolio again too. GE is a bit of a risky move, I probably will not engage in it. I will not engage in Nokia either. But what do you have against the auto department? They can be unpredictable, but isnt Ford likely to go up?

    I have also begun looking at Marathon Oil. But I dont really know how to research. I can view the balance sheet, equity, debt, etc. But how do I find out about the company itself? The management, what their plans are, etc?

    Since I am new, I have also begun looking at ETF's. It seems that ETF's are a lower risk, lower reward type of deal. I am interested in a larger reward, but if I am not ready for individual stocks I will play my hand in some of these funds.

    What would your recommendations be?
     
  8. WXYZ

    WXYZ Active Member

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    "Opening me up to the conclusion that the share price doesnt matter as long as the percentage is the same has made a big difference. I wont limit myself to extremely cheap stocks, I will just look for undervalued stocks"

    What you said above....now you are starting to get it. I just NEVER buy auto stocks. They cycle up and down and in my opinion there are much better investments than auto stocks. Like Costco, Nike, Amazon, Google, Boeing. The auto stocks are too BOOM and BUST over and over for my taste. They are also old and stodgy companies. As to oil my picks would be Chevron and perhaps Exxon.

    With the recent big drop in the markets recently there are many great name stocks on sale right now. Look at Amazon for example compared to three months ago at the market high.

    I posted this in my LONG TERM INVESTOR thread....to me this little article contains the basic theory of Value Investing. Use this as a starting point to think about things. Remember, just because a stock is cheap does not mean it is a good value. There is usually a very good reason a business is sinking........it sucks.

    "An Evolve-or-Die Moment for the World's Great Investors
    The dominance of tech stocks has forced some of the best investing minds—including Warren Buffett himself—to reexamine their thinking. Who will adapt and survive?"

    (read the entire article, there is a part in the middle of the article where it looks like it ended, keep scrolling down to continue the article)

    http://www.fortune.com/longform/value-investing-warren-buffett-tech-stocks/
     
    #8 WXYZ, Dec 28, 2018
    Last edited: Dec 28, 2018

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