Archive for December, 2008


Markets Investing

Filed Under: Fundamental by Bill — 1 Comment
December 30, 2008

You’ve probably heard the old adage that all boats rise with the tide.  Well this can often be true in the stock world and it’s well worth being aware of.  Sometimes you may have found the best valued stock in the world..say it’s a home builder.  This company runs it’s business well, does great customer support, has quality products, treats it’s shareholders right and you know everyone must love it, but the stock just keeps getting pounded down and down.  This is because there is a lot of markets investing out there and when a whole sector is hurting like house building even the cream of the crop can get drug down with it. 

I’m not trying to say that you can’t invest in a down market, or short in a up market, I’m just saying that generally you’ll be adding increased risk to your trade or investment.  At least be aware of the situation.

I find it useful to look at ETFs related to the sector and see how they are performing.  As long as they are remotely in line with my investment idea then the market should help support my investment.

This also works for technical analysis, sometimes even better than fundamental investing.  It’s difficult to find good information for a market in general, but all the same TA tools work on a bucket of stocks either by looking at the index fund or creating your own bucket of stocks and charting their performance (though without good charting software this takes some effort.)

The other side of market investing is when you have an insight into certain market doing well, but you can’t figure out who the winners or losers we’ll be in the market.  Emerging markets is a common situation, I personally feel alternative energy is going to do well over the next couple years, but so far I haven’t been able to hash out any good front runners.  A quick google search yields many blogs on alternative energy investments and funds – which haven’t seemed to fare the recent downturn any better than anyone else.   Investing in the market as a whole will diversify my choices while keeping me focused in the sector I believe to do well.  Generally this reduces risk without minimizing your reward too much if you’re correct.

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DOW Stock Pick

Filed Under: Stock Pick of the Day by Bill — Comments Off
December 29, 2008

My last stock pick of 2008 will be Dow Chemicals.  This is a pure and simple dividend play.  Honestly not much more into it than that.  The closing on Friday was $19.64 (though for the record I’ll count closing of the day posted) with a dividend yield of 8.69%.

Sure we’ve all been pounded chasing a few falling knives before, but as noted in: http://seekingalpha.com/article/111955-dow-chemical-a-legitimate-high-yield-stock

the CEO of DOW stated in October’s earnings release:

Dow is the only company in the Fortune 200 to have paid its regularly quarterly cash dividend without reduction or interruption since 1912…That’s 388 consecutive quarters. I’ve said it before, but I want to say it again, we will not break that streak. [1]

Dow is bound to making it’s dividend payments.  Once it misses a dividend a pile of shares that have been held for decades will get released causing share prices to plummet, and who wants to be the CEO on the watch for that one?

In the chart above I swore DOW had a stock split I had to verify before I wrote this post.  Essentially DOW has only returned 2.9% per year since 1993.  Earnings in 1993 were about $2.02 a share excluding all the speciality business sales and breast implant litigation with a dividend of 21 cents a share per quarter.  The current EPS is $2.75 with a dividend of 42 cents a share per quarter.  So just counting earnings the growth of price and earnings are roughly in line (earnings grew at almost 2% per years) however, the dividend has been growing at 5% a year.  Future earnings outlooks according to Yahoo Finance is 7% per year for the next 5 years.  This kicks out a PEG of about 1. 

DOW is one of those companies I have wanted to own for awhile and it’s likely one I’d hold for awhile.  If you have a portfolio outside of your IRA or 401K I’d recommend it there as it likely will fall into the long term capital gain category with dividend income both of which are tax lowered than ordinary income for most investors.

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Stock Market ETF (Exchange Traded Fund)

Filed Under: Glossary by Bill — 3 Comments
December 28, 2008

A stock market ETF is are index funds or trusts that are listed on the stock exchange and can be traded just like any other stock.  They are setup by large investors who take blocks of the holdings investments and divides them into single shares.  These shares can be bought and sold intraday, bought on margin, sold short, have options contracts created on them, or held for the long term.  Unlike many mutual funds they don’t have front end loads, but stock broker commissions still apply.

What makes a stock market ETF different than a hedge fund is they must disclose every day their holdings.  Therefore you’re not investing in the management team of the firm, but the holdings of the index.  In most cases these holdings are not changing much and are predefined like the DOW stocks or the S&P 500. 

Exchange Traded Funds can also be found holding buckets of bonds, commodities, and currencies.

Why buy the stock market ETF versus just buying individual companies?  Sometimes you may have a better understanding of a sector or general market, but not necessarily know which company is going to be the winner in that sector.; or you just like the diversification with the added trading cost.  Own 100 different shares in 1 trade.  Also, most ETF’s have lower cost because they require less marketing and more tax efficiency since they are not “trading stocks”, but maintaining a bucket of stocks.

ETF’s are another great tool in the investor’s workshop.

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How Is Your Personal Finance Health?

Filed Under: Personal Finance by Bill — Comments Off
December 27, 2008

Sometimes all of our personal finance’s health need a check-up.  While most of us wait to the end of the year for this it really should be on on going exercise. It’s good to play some “what if” games to get a good feel of how your finances would hold up and you should play these WITH your significant other.  One of the first reasons the home finance system fails is when both spouses aren’t on the same page.

Here’s a few questions to get you started:

  • What if one of you loses a job?  How long will the bills be able to get paid?  How long until you’d even be able to start the job hunt?  Is your resume up to date or are your references planned out?  These are things you want done while the money is still coming in!
  • What if your APR on your (mortgage, car payment, credit cards) went up by 1%?  5%?  Are these situations you can handle or would your personal finance health have an asthma attack?  Perhaps it’s time to have a little more spare money in the cash flow or move to fix interest to take the variation out.
  • What if someone gets really ill?  Do you have savings to ride through this or really great health insurance?
  • What if you win that lotto you wouldn’t quit playing? (See they don’t all have to be bad questions!)  How would you spend the money?  How would you invest the cash?  Having plans for windfall money when you don’t have it helps cut down the impulse spending and the guilt giving. 

I recommend you create a plan and have some sort of standard time to work on the plan or compare how your doing compared to your personal finance plan.  I prefer weekly as this prevents bad habits from taking hold or causing too much damage.  Make it fun!  My wife and I use our car time to talk about it.  But you can go to your favorite coffee joint, or hang out on a park bench.  Whatever you like to do – if you make in enjoyable and repeatable you might actually do it.

I just don’t want your personal finance health to end up in the personal finance E.R.

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