Sorry I'm a little late with this pick. I've been very busy with other things, and I want to take the time to make this the sort of high quality pick my readers have come to expect (stop snickering!) As always, Fleabagger's recommendations are not endorsements of the companies mentioned, and Fleabagger Portfolio disclaims all responsibility for your portfolio. You make your own decision, and you own it.
Okay, so my first two picks are down about 8% per month each. Like I said last month, if you haven't bought Nasdaq stock (Nasdaq: NDAQ) yet, I strongly urge you to do so now. It's a great company trading at a great price. Also, if you believe as I do that we will have a spendthrift government financing their largesse by inflating the currency, Coeur d'Alene Mines (NYSE: CDE) will profit from the flight to silver and gold as inflation hedges. Both of these companies are trading near or below their book value, at bargain valuations compared to their history and their potential. Hey, I own them, right? So they must be great.
Well, here's another pick for the history books, so a year or two from now I can point to this as a reason to start charging for my ideas. What is my idea? Why, buying low of course!
There are plenty of good companies you can buy low right now, considering that many stocks of companies with great brands are trading 30%, 50%, or more off their recent highs in anticipation of a bad recession, with perhaps a dash of inflation (see my July pick). But I think that most of those great companies you could "buy low" right now you will probably still be able to buy low in September, October, and perhaps beyond, much like how you can still buy Nasdaq (NDAQ) low, two months after I recommended it. So I am recommending something that I think could see rapid price increases in the next few months. Western Refining (NYSE: WNR).
As a refiner, Western, like its fellow refiners Valero (NYSE: VLO), Frontier (NYSE: FTO), Tesoro (NYSE: TSO), and Holly (NYSE: HOC), does not extract its own oil, but buys it from drillers. So when oil prices go up, Western, Valero, etc. are spending more money to get what they need to do business.
Now, of course refiners sell gasoline, and gasoline prices have been going up. We've all felt that. But they've been going up a lot less than oil prices. So that puts a squeeze on refiners.
The good news (for refiners) is that other refined petroleum products have been going up in price more than gasoline, and their profit margins are not squeezed as much as the straight oil/gasoline comparison would indicate. They also sell jet fuel, diesel, heating oil, and petroleum coke (not an illegal drug), among other things. Many of these things have been closer to tracking the price of oil than gasoline has been. That's partly because of the political pressure to keep gas prices low, and the fear of gasoline sellers that there may be repercussions for sustained $4/gal gasoline.
Nevertheless, profit margins for refiners have been dropping. And that's bad news for companies like Western. But it could be good news for you. Why? Good question. It's because of supply and demand.
Things like oil and refined petroleum products go up and down in price, and the refining margin goes up and down too. Those who believe oil is going to $200/barrel some time soon don't think refining margins will recover in time to make them a profitable investment. Not likely. Oil may well go to $200/barrel, but the speculators have gotten a little ahead of themselves. Too much buying on margin and too little concern for effects on demand have pushed crude oil prices higher than are sustainable in the short term. We are already seeing a pullback in crude prices. This has been accompanied by a pullback in refined petroleum product prices, and thus done refiners like Western no good yet. But refining capacity in the U.S. is so limited that margins are going to go higher soon. It seems very likely to me that at some point jet fuel and petrochemical prices are going to have to break upward away from a temporarily stagnant or diminishing crude price.
So what? Well, Western Refining has been severely diminished in price in the belief that refining margins are never going to go back up. Or that it will be too late for Western. Either way, Western has come down from over $65 per share last summer (in mid-July), and closed Friday at $7.58. They report earnings on Thursday, August 7, before the markets open. If you think they're going to surprise skeptics, the last time you can buy before the report is Wednesday, August 6, before 4:00PM. Even if they do surprise with better-than-expected earnings, however, there will still be time to catch some upside on Thursday, because they could quadruple from here without reaching half of last year's high. So without good news, buy anywhere below $8.00 and plan to hold for 1-2 years. With good news, pay whatever it takes, and hold for 1-2 years. If you are an experienced investor and are familiar with options, this might be a good time for some call options, because of the short time frame and the high volatility. Dec '08 calls with a $5 strike are going for about 3.30. That gives you two quarterly reports to get about $8.30. Not bad at all.
Whatever you do, research and own your own decision, consult a financial advisor, and do not mistake anything here for a guaranty.
Disclosure: the author holds stock and/or calls in NDAQ and CDE, but does not yet own any position in this month's recommendation, or any other stock mentioned. The author may yet open a position in any of the stocks mentioned.
UPDATE: WNR is down 12% or so to about $6.60 per share this morning. Also, call options involve greater risk than stocks. I should have mentioned that.
Monday, August 4, 2008
Friday, June 27, 2008
July 2008 Stock Pick
This may seem like an inauspicious time to come up with a new pick. My first and as yet only pick is down more than 20% - so if you trust me, you should be buying even more of that one, and if you don't trust me, what's the point of giving you more advice? Well, I want to go on record with more picks. I believe that there is a very high chance of my first pick being much higher in 1-2 years, and I want everyone to be prepared with another good opportunity in case that first one soars soon (i.e. before you can buy it).
This is a difficult choice. The company I really wanted to recommend is a recommendation of The Motley Fool's Rule Breakers paid subscription service, to which I was given a free trial against my will (not that I'm not grateful). I would feel too guilty were I to give away on my free blog what they are selling to their subscribers, even though I came up with the idea independently of them. So I will go with my second choice, a company that I think is not as well-run, not as likely to continue growing for more than 4 years, and not as likely to return 1,000% or more over the very long term. Maybe next month I'll get over my scruples and give you company A. This month, you'll have to settle for company B. Or should I say, "company C"?
Meet Coeur d'Alene Mines (CDE). To look at the financial data, this is not a great-looking company. Return on equity is less than 3%, and return on assets is less than half of even that. Lame! The earnings growth -66%... why! That's not growth at all, Jasper! That's shrinkage! And for all those lame stats we're expected to pay how much times their past 12 months' earnings? 32?! "Are you kidding us, Uncle Fleabagger?"
You're missing the big picture, kids. Do you remember the company's name? Coeur d'Alene whats? Mines. Silver and gold mines, to be exact. Virtually all of their revenue comes from mining the shiny metals. "Why does that change everything?"
Hear now and profit for the rest of your life: mining companies are rarely good investments, and miners of the rarest metals are accordingly more rarely good investments. This is one of those times.
Why? Well, because your government sucks. Literally. If you live anywhere in the Americas, Europe, Africa, South Asia, East Asia, or almost anywhere else in the world, then you probably are ruled by a government that inflates its currency to pay for political favors in order to stay in power, essentially sucking the value right out of your money. I'm not going to debate the merits of this, but just pay attention to how much more a gallon of gasoline or a bag of rice costs in that currency of yours, and you'll know I'm telling the truth.
So what does this have to do with precious metal miners? Well, wherever possible, people acquire gold and silver when they're afraid that their paper money is going to become more and more worthless. People are already waking up to this in Vietnam and India, and fabulously rich people Jim Rogers and Peter Schiff have been going this route. As more and more Norteamericanos start to figure out that "core inflation" is a scam to make people complacent, there will be a lot more silver and gold buying in the U.S. Not to be outdone, China and its East Asian tigers (Singapore, S. Korea, etc), as well as Japan, are still using trace amounts of silver (and sometimes gold) in the manufacture of all kinds of products (microprocessors, cameras, drugs, etc). That's because they still make things in those countries.
Yes, everyone in America will be much poorer in a couple years unless they own silver or invent something spectacular. So who will actually make more money over the next few years? People who own a lot of silver that is vastly undervalued because of fears of the costs of accessing that silver exceeding the value of that silver because it's underground in the midst of a bunch of worthless rock. That is, silver mining companies. Well, Coeur d'Alene has 278.8M oz in silver reserves and its market cap is equivalent to 92M oz at today's silver prices (which I think are going to go up). Now, of course there are costs associated with getting that silver out of the mines and selling it. And Coeur is busy diluting their equity to raise the capital to cover those costs. Yeah, that kinda sucks. But if you think (as I do) that silver prices are going to go up faster than most other prices, miners with huge silver reserves (such as Coeur) will stand to profit enormously, returning a substantial gain to shareholders despite share dilution and rising mining costs. If silver prices rise (or even just stay where they are right now), the numbers that look bad now (their return on equity and return on assets, for example) will look a whole lot better.
One of the best things going for Coeur, according to my thesis, is that they do not hedge against silver prices, a process by which many miners sell their product in advance at fixed prices, limiting their potential profit if the price of the metal soars, and theoretically (but not really) limiting their risk. It's actually risky to hedge, because extraction prices could rise for the metal they've already sold at low fixed prices, forcing a company into bankruptcy because of their attempts to play it safe. Coeur doesn't do that. They are fully leveraged to the price of silver (and gold and everything else), just the way I like it.
Unfortunately, I am forced to publish after market hours, so something could happen to drastically change the price of CDE stock between when I publish this and when you are able to buy it. But it closed at $2.90 today, and it's a good way to play an increase in silver prices anywhere under $3.50, maybe more. Disclosure: I own shares of CDE and call options with various expirations. Consult your own financial advisor and/or astrologer. Whatever you do, own your decision, it's your own.
July 5 edits: I fixed the part about Coeur's ROE and ROA at the beginning and tied my thesis back to it in a later paragraph. I added some quotational marks. And I added a clause about how inflation "sucks." And by the way, CDE closed at $2.52 Thursday after making new 52-wk lows. It's amazing.
This is a difficult choice. The company I really wanted to recommend is a recommendation of The Motley Fool's Rule Breakers paid subscription service, to which I was given a free trial against my will (not that I'm not grateful). I would feel too guilty were I to give away on my free blog what they are selling to their subscribers, even though I came up with the idea independently of them. So I will go with my second choice, a company that I think is not as well-run, not as likely to continue growing for more than 4 years, and not as likely to return 1,000% or more over the very long term. Maybe next month I'll get over my scruples and give you company A. This month, you'll have to settle for company B. Or should I say, "company C"?
Meet Coeur d'Alene Mines (CDE). To look at the financial data, this is not a great-looking company. Return on equity is less than 3%, and return on assets is less than half of even that. Lame! The earnings growth -66%... why! That's not growth at all, Jasper! That's shrinkage! And for all those lame stats we're expected to pay how much times their past 12 months' earnings? 32?! "Are you kidding us, Uncle Fleabagger?"
You're missing the big picture, kids. Do you remember the company's name? Coeur d'Alene whats? Mines. Silver and gold mines, to be exact. Virtually all of their revenue comes from mining the shiny metals. "Why does that change everything?"
Hear now and profit for the rest of your life: mining companies are rarely good investments, and miners of the rarest metals are accordingly more rarely good investments. This is one of those times.
Why? Well, because your government sucks. Literally. If you live anywhere in the Americas, Europe, Africa, South Asia, East Asia, or almost anywhere else in the world, then you probably are ruled by a government that inflates its currency to pay for political favors in order to stay in power, essentially sucking the value right out of your money. I'm not going to debate the merits of this, but just pay attention to how much more a gallon of gasoline or a bag of rice costs in that currency of yours, and you'll know I'm telling the truth.
So what does this have to do with precious metal miners? Well, wherever possible, people acquire gold and silver when they're afraid that their paper money is going to become more and more worthless. People are already waking up to this in Vietnam and India, and fabulously rich people Jim Rogers and Peter Schiff have been going this route. As more and more Norteamericanos start to figure out that "core inflation" is a scam to make people complacent, there will be a lot more silver and gold buying in the U.S. Not to be outdone, China and its East Asian tigers (Singapore, S. Korea, etc), as well as Japan, are still using trace amounts of silver (and sometimes gold) in the manufacture of all kinds of products (microprocessors, cameras, drugs, etc). That's because they still make things in those countries.
Yes, everyone in America will be much poorer in a couple years unless they own silver or invent something spectacular. So who will actually make more money over the next few years? People who own a lot of silver that is vastly undervalued because of fears of the costs of accessing that silver exceeding the value of that silver because it's underground in the midst of a bunch of worthless rock. That is, silver mining companies. Well, Coeur d'Alene has 278.8M oz in silver reserves and its market cap is equivalent to 92M oz at today's silver prices (which I think are going to go up). Now, of course there are costs associated with getting that silver out of the mines and selling it. And Coeur is busy diluting their equity to raise the capital to cover those costs. Yeah, that kinda sucks. But if you think (as I do) that silver prices are going to go up faster than most other prices, miners with huge silver reserves (such as Coeur) will stand to profit enormously, returning a substantial gain to shareholders despite share dilution and rising mining costs. If silver prices rise (or even just stay where they are right now), the numbers that look bad now (their return on equity and return on assets, for example) will look a whole lot better.
One of the best things going for Coeur, according to my thesis, is that they do not hedge against silver prices, a process by which many miners sell their product in advance at fixed prices, limiting their potential profit if the price of the metal soars, and theoretically (but not really) limiting their risk. It's actually risky to hedge, because extraction prices could rise for the metal they've already sold at low fixed prices, forcing a company into bankruptcy because of their attempts to play it safe. Coeur doesn't do that. They are fully leveraged to the price of silver (and gold and everything else), just the way I like it.
Unfortunately, I am forced to publish after market hours, so something could happen to drastically change the price of CDE stock between when I publish this and when you are able to buy it. But it closed at $2.90 today, and it's a good way to play an increase in silver prices anywhere under $3.50, maybe more. Disclosure: I own shares of CDE and call options with various expirations. Consult your own financial advisor and/or astrologer. Whatever you do, own your decision, it's your own.
July 5 edits: I fixed the part about Coeur's ROE and ROA at the beginning and tied my thesis back to it in a later paragraph. I added some quotational marks. And I added a clause about how inflation "sucks." And by the way, CDE closed at $2.52 Thursday after making new 52-wk lows. It's amazing.
Friday, May 23, 2008
June 2008 Stock Pick
Here it is, the moment you've all been waiting for: my inaugural stock pick!
Here is the ticker: NDAQ (Disclosure: I already own shares of NDAQ, and I may buy more without notice.)
Here is the background: this stock represents the Nasdaq OMX Group, Inc. You may have heard of the Nasdaq. It is an American stock exchange that introduced electronic trading, and they have revolutionized the way people trade stocks. It used to be that you would write a letter to your broker and he would have a trader up in New York try to get you a good price by shouting at a bunch of other traders some time the next week. Then Nasdaq came along, with Cisco, Apple, Microsoft, Sun Microsystems, et cetera, and introduced computers to stocks and stocks to computers. They have been innovating and dominating the stock exchange business ever since.
Of course, as the home of all the tech stocks worth noting, Nasdaq experienced a lot of pain in 2001 and 2002, when the tech bubble burst. This was necessary, because a lot of companies that should not have existed needed to be wiped out for the good of the country and for Pete's sake, and Nasdaq had been collecting listing fees from them in the meantime. It was bound to end. Well, Nasdaq had a public offering of their stock in the worst of times, the summer of 2002, and their stock promptly fell from there until more or less the autumn of 2004. Meanwhile their business and their profits had been growing. People started to take notice that a fast-growing company with a moat (that means new companies would have a heck of a time doing what they do) was available cheap, and the stock octupled from its 2004 lows in a little more than a year.
This great company had gotten no respect for a long time, was cheap, then people started to notice, and some people who bought in near its lows made several times their investment in a little more than a year. This story is told over and over again in the stock market. And it might be in the retelling for this particular stock a second time.
Nasdaq's revenue and profits from that revenue have been growing rapidly and consistently, peaking in the short term with the acquisition of the Swedish OMX Nordic Exchange and the high trading volumes prompted by recession fears; however, earnings will reach new heights in the not-too-distant future, if anything in this world is to be predicted.
For one, Nasdaq has been gaining on NYSE Euronext (NYSE ticker: NYX), their main American competitor, for years. Nasdaq is like the new bully who has come along and pushed the old bully down and taken her lunch money. NYSE is the old bully, and she's been losing market share to Nasdaq for years now. So if trading volumes and listings stay flat, Nasdaq has proved it can still increase profits by taking them from the NYSE.
Probably more importantly, OMX has an extra revenue stream from providing other exchanges with software and technology. They estimate that they have about 2% worldwide market share in this, and it is 35% of their revenue, coming from 60 different customers (these numbers are actually almost a year old - sorry I couldn't find more recent stats). This sounds like a growth opportunity to me.
I have read that Jim Cramer says he likes NYSE Euronext more than Nasdaq OMX, and I know he's certainly not alone in that. NYSE's stock (NYX) is trading for 20.90 times their earnings per share (EPS). In investing lingo, this means they have a P/E of 20.9; NDAQ's P/E is 8.45, despite repeatedly proving itself a faster-growing, better-managed, nimbler company than the NYSE. Somebody is not telling us something.
Well, there's a reason NDAQ's P/E is so low. Their EPS this past year reflects one-time sources of income and so forth, so that their forward P/E (their share price divided by their estimated EPS for the coming year) is 13.62. If you know anything about fast-growing companies, you know that's still a very low P/E for any company that's expected to grow at any time in the near future, let alone grow a lot very fast for the extent of the near future, and turn into one of the world's biggest, most profitable companies with a combination of brand power, technology, and business relationships.
The Risky Stuff
1. There is cause for concern over the quintupling of their debt load in the most recent quarter, though that is balanced by similar increases in assets. That is why it is called a "balance sheet."
2. Another possible concern is the operating cash flow (OCF) that is not growing the way revenue and earnings are. But the company is largely an investment company, and their investments drive a lot of growth in free cash flow (FCF).
3. Also, there are a lot of stock exchanges in this world that could provide competition and loss of pricing power, but at this point, they look more like potential acquisitions than they do like bullies of the future.
End of Risky Stuff
You might think I'm painting an overly rosy picture of Nasdaq's future. Okay, maybe I am. I have a lot of respect for the company and what they've managed to accomplish. Maybe they won't do as well as I think, and competition in the stock exchange space is going to be worse than I think, and unforeseeable things could go wrong. Maybe there are things I don't see, even though I searched high and low for a well thought-out reason not to buy NDAQ, and I couldn't find one. Well, a lot of that is already priced into NDAQ with it trading at < 15x estimated earnings for the coming year. The price of the stock is such that a lot of things could go wrong for the company, and you still would not lose very much money. If just a few things go right, you stand to profit tremendously. It seems likely to me that some of you will look back on these times and say "I can't believe I didn't buy stock in Nasdaq when it was trading for less than 10x earnings! Fleabagger said to, and yet I didn't believe him. What was I thinking!"
Spare your forehead the wrath of the palm of your hand. Buy NDAQ while it's still cheap.
NDAQ is trading for $33.50 in intraday trading as I prepare to post this on Friday, May 23, 2008 between 12:30 and 1:00 PM EDT. I would call NDAQ a serious buy anywhere below $40, and I would call $29 my "all-in" price, where young investors with gainful employment should put as much as they can in. As always, do enough research to own your own decision, consult your financial advisor or whatever, and remember that all stocks have the risk of severe capital loss. Neither The Fleabagger Portfolio nor its author is in any way responsible for any loss you suffer by acting on advice found on this space. You are responsible for your own investments and financial decisions.
Here is the ticker: NDAQ (Disclosure: I already own shares of NDAQ, and I may buy more without notice.)
Here is the background: this stock represents the Nasdaq OMX Group, Inc. You may have heard of the Nasdaq. It is an American stock exchange that introduced electronic trading, and they have revolutionized the way people trade stocks. It used to be that you would write a letter to your broker and he would have a trader up in New York try to get you a good price by shouting at a bunch of other traders some time the next week. Then Nasdaq came along, with Cisco, Apple, Microsoft, Sun Microsystems, et cetera, and introduced computers to stocks and stocks to computers. They have been innovating and dominating the stock exchange business ever since.
Of course, as the home of all the tech stocks worth noting, Nasdaq experienced a lot of pain in 2001 and 2002, when the tech bubble burst. This was necessary, because a lot of companies that should not have existed needed to be wiped out for the good of the country and for Pete's sake, and Nasdaq had been collecting listing fees from them in the meantime. It was bound to end. Well, Nasdaq had a public offering of their stock in the worst of times, the summer of 2002, and their stock promptly fell from there until more or less the autumn of 2004. Meanwhile their business and their profits had been growing. People started to take notice that a fast-growing company with a moat (that means new companies would have a heck of a time doing what they do) was available cheap, and the stock octupled from its 2004 lows in a little more than a year.
This great company had gotten no respect for a long time, was cheap, then people started to notice, and some people who bought in near its lows made several times their investment in a little more than a year. This story is told over and over again in the stock market. And it might be in the retelling for this particular stock a second time.
Nasdaq's revenue and profits from that revenue have been growing rapidly and consistently, peaking in the short term with the acquisition of the Swedish OMX Nordic Exchange and the high trading volumes prompted by recession fears; however, earnings will reach new heights in the not-too-distant future, if anything in this world is to be predicted.
For one, Nasdaq has been gaining on NYSE Euronext (NYSE ticker: NYX), their main American competitor, for years. Nasdaq is like the new bully who has come along and pushed the old bully down and taken her lunch money. NYSE is the old bully, and she's been losing market share to Nasdaq for years now. So if trading volumes and listings stay flat, Nasdaq has proved it can still increase profits by taking them from the NYSE.
Probably more importantly, OMX has an extra revenue stream from providing other exchanges with software and technology. They estimate that they have about 2% worldwide market share in this, and it is 35% of their revenue, coming from 60 different customers (these numbers are actually almost a year old - sorry I couldn't find more recent stats). This sounds like a growth opportunity to me.
I have read that Jim Cramer says he likes NYSE Euronext more than Nasdaq OMX, and I know he's certainly not alone in that. NYSE's stock (NYX) is trading for 20.90 times their earnings per share (EPS). In investing lingo, this means they have a P/E of 20.9; NDAQ's P/E is 8.45, despite repeatedly proving itself a faster-growing, better-managed, nimbler company than the NYSE. Somebody is not telling us something.
Well, there's a reason NDAQ's P/E is so low. Their EPS this past year reflects one-time sources of income and so forth, so that their forward P/E (their share price divided by their estimated EPS for the coming year) is 13.62. If you know anything about fast-growing companies, you know that's still a very low P/E for any company that's expected to grow at any time in the near future, let alone grow a lot very fast for the extent of the near future, and turn into one of the world's biggest, most profitable companies with a combination of brand power, technology, and business relationships.
The Risky Stuff
1. There is cause for concern over the quintupling of their debt load in the most recent quarter, though that is balanced by similar increases in assets. That is why it is called a "balance sheet."
2. Another possible concern is the operating cash flow (OCF) that is not growing the way revenue and earnings are. But the company is largely an investment company, and their investments drive a lot of growth in free cash flow (FCF).
3. Also, there are a lot of stock exchanges in this world that could provide competition and loss of pricing power, but at this point, they look more like potential acquisitions than they do like bullies of the future.
End of Risky Stuff
You might think I'm painting an overly rosy picture of Nasdaq's future. Okay, maybe I am. I have a lot of respect for the company and what they've managed to accomplish. Maybe they won't do as well as I think, and competition in the stock exchange space is going to be worse than I think, and unforeseeable things could go wrong. Maybe there are things I don't see, even though I searched high and low for a well thought-out reason not to buy NDAQ, and I couldn't find one. Well, a lot of that is already priced into NDAQ with it trading at < 15x estimated earnings for the coming year. The price of the stock is such that a lot of things could go wrong for the company, and you still would not lose very much money. If just a few things go right, you stand to profit tremendously. It seems likely to me that some of you will look back on these times and say "I can't believe I didn't buy stock in Nasdaq when it was trading for less than 10x earnings! Fleabagger said to, and yet I didn't believe him. What was I thinking!"
Spare your forehead the wrath of the palm of your hand. Buy NDAQ while it's still cheap.
NDAQ is trading for $33.50 in intraday trading as I prepare to post this on Friday, May 23, 2008 between 12:30 and 1:00 PM EDT. I would call NDAQ a serious buy anywhere below $40, and I would call $29 my "all-in" price, where young investors with gainful employment should put as much as they can in. As always, do enough research to own your own decision, consult your financial advisor or whatever, and remember that all stocks have the risk of severe capital loss. Neither The Fleabagger Portfolio nor its author is in any way responsible for any loss you suffer by acting on advice found on this space. You are responsible for your own investments and financial decisions.
Thursday, May 22, 2008
How to start investing in stocks
One of the things that you often hear from financial publications and TV shows and whatnot is that you need diversification in your investments. This is nonsense, unless you are old or wealthy. If you are young and poor, like me, you need more money. Diversification only protects existing money from losing its value. If you are young and just starting out, you need good stock selection.
First, if you are going to be a really good investor, read everything you can that was written by Benjamin Graham, Peter Lynch, and/or Fool.com. I will also write about how to evaluate stocks in this space, going forward. Study long and hard, unless you want to learn investing by practice (which is really expensive, and can be hard on your relationship with your family, if the term "your family" refers to people who are, on average, about as young as you or younger).
Finally, when you know everything there is to know about value investing and growth investing and have several hundred dollars saved up for your first stock purchase, open an online brokerage account. The best of these is probably one of the cheapest. One good one for new investors is Sharebuilder (and I'm not just saying that because I get paid if you click on the Google ad for them in the corner). Sharebuilder is an online brokerage that I use, and they provide a service that allows you to schedule stock purchases for a Tuesday morning, and pay just $4 in commission. This is strangely cheap, and unusually restrictive, but it should do just fine for newbies who would otherwise be paying more to buy a stock. After all, you probably will be buying just one stock to begin with. (E*Trade might let you trade 25 times for free if you trade 50 times per month, or something like that, but that doesn't help someone like you, now does it?)
Other standouts in the cheap category are Scottrade ($7 per trade, and no fees for IRA's and Roth IRA's - more on those later) and TradeKing ($4.95 per trade), both of which I also use. You might want to try these once you are feeling more adventurous and want to know the joys of a limit order or a free tax shelter.
Now, what about all those people on CNBC and whatnot that fret about the direction of the market? Well, you can ignore them. Very few of the many investors and traders who are doing well actually need to know anything about the direction of the market. Just find a company that no one else seems to be paying attention to, and study it. Do they make money? Are they going to make more money in the future? Is there any reason their shares should be trading for a much higher price? Is it in an industry or sector that is going to do well? Is it better than its competitors in that industry or sector? Is there any risk that could make their shares trade at a much lower price? If you answer these questions Yes, Yes, Yes, Yes, Yes and No (or not much), respectively, you have a winner. Buy it. Follow it and the news about it and about its industry. Ignore the price movements of the other 10,000 or so stocks, because those don't matter. You and your portfolio matter.
Getting back to diversification, if you diversify you have two options: start buying stocks that you don't have time to know anything about, or buy mutual funds/ETF's. The first option is more dangerous than having shares of just one or two companies you know well (and by the way, working for a company or buying its products is nothing like knowing it well, unless you're the CFO), and the second option, while technically safer, is also going to kill your shot at sustained growth >30%. >30% growth is our goal here, so I encourage you to reject that option. We're still young: let's floor it!
Within the next ten days or so I will issue my first recommendation. I will call it my "June 08" recommendation. Pretty clever, huh? As always, do not buy anything unless you know enough about it to own it as your own decision as well as own the investment itself.
First, if you are going to be a really good investor, read everything you can that was written by Benjamin Graham, Peter Lynch, and/or Fool.com. I will also write about how to evaluate stocks in this space, going forward. Study long and hard, unless you want to learn investing by practice (which is really expensive, and can be hard on your relationship with your family, if the term "your family" refers to people who are, on average, about as young as you or younger).
Finally, when you know everything there is to know about value investing and growth investing and have several hundred dollars saved up for your first stock purchase, open an online brokerage account. The best of these is probably one of the cheapest. One good one for new investors is Sharebuilder (and I'm not just saying that because I get paid if you click on the Google ad for them in the corner). Sharebuilder is an online brokerage that I use, and they provide a service that allows you to schedule stock purchases for a Tuesday morning, and pay just $4 in commission. This is strangely cheap, and unusually restrictive, but it should do just fine for newbies who would otherwise be paying more to buy a stock. After all, you probably will be buying just one stock to begin with. (E*Trade might let you trade 25 times for free if you trade 50 times per month, or something like that, but that doesn't help someone like you, now does it?)
Other standouts in the cheap category are Scottrade ($7 per trade, and no fees for IRA's and Roth IRA's - more on those later) and TradeKing ($4.95 per trade), both of which I also use. You might want to try these once you are feeling more adventurous and want to know the joys of a limit order or a free tax shelter.
Now, what about all those people on CNBC and whatnot that fret about the direction of the market? Well, you can ignore them. Very few of the many investors and traders who are doing well actually need to know anything about the direction of the market. Just find a company that no one else seems to be paying attention to, and study it. Do they make money? Are they going to make more money in the future? Is there any reason their shares should be trading for a much higher price? Is it in an industry or sector that is going to do well? Is it better than its competitors in that industry or sector? Is there any risk that could make their shares trade at a much lower price? If you answer these questions Yes, Yes, Yes, Yes, Yes and No (or not much), respectively, you have a winner. Buy it. Follow it and the news about it and about its industry. Ignore the price movements of the other 10,000 or so stocks, because those don't matter. You and your portfolio matter.
Getting back to diversification, if you diversify you have two options: start buying stocks that you don't have time to know anything about, or buy mutual funds/ETF's. The first option is more dangerous than having shares of just one or two companies you know well (and by the way, working for a company or buying its products is nothing like knowing it well, unless you're the CFO), and the second option, while technically safer, is also going to kill your shot at sustained growth >30%. >30% growth is our goal here, so I encourage you to reject that option. We're still young: let's floor it!
Within the next ten days or so I will issue my first recommendation. I will call it my "June 08" recommendation. Pretty clever, huh? As always, do not buy anything unless you know enough about it to own it as your own decision as well as own the investment itself.
Tuesday, May 20, 2008
Welcome to The Fleabagger Portfolio
This blog is not related to the blog at fleabagger.blogspot.com. It is, however, related to the FleaBagger of CAPS fame. (Okay, well, probably not fame, per se.) This blog is going to offer free stock advice, caveat emptor, and make one recommendation of a stock purchase every month. You are always completely responsible for the investment decisions you make, whether or not they were based on my advice. I sincerely hope that my advice will make all of my readers rich beyond their wildest imaginations, but if you follow my advice and lose all of your money, I will not be held legally liable. Consult your own financial advisor.
I expect to make my first pick on or around June 1, 2008. I may (or may not) decide to distinguish among different risk levels, intended holding periods, etc. Watch this space for updates.
I expect to make my first pick on or around June 1, 2008. I may (or may not) decide to distinguish among different risk levels, intended holding periods, etc. Watch this space for updates.
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