Years ago, my husband and I worked for the same global-investment-management firm in the same West Coast office. One day, the decision was made to close that office and move our team across country to New York City.
We didn’t want to move but because we both worked for the same firm, we didn’t exactly have a choice. Had we diversified our employment and, therefore, our primary source of income, we would have put ourselves in a much stronger position to make the best decision for our family.
We ignored the cardinal rule of investing: diversify, diversify, diversify.
But rarely do investors understand what it means to be truly diversified. Simply owning shares in various companies will not provide real diversification if, for example, those companies are all in the same industry or economic sector. Diversification is actually about how different investments perform in various economic scenarios. Or to put it another way: Selecting investments is not so different from how we select our friends.
Each one of my friends exhibits an overriding attribute. Some are great in a crisis. Others are fun to be around when times are good. I have friends who like to exercise and those who prefer the theater. Supportive friends and the kind who are scarce in times of difficulty. Like you, I have different friends who shine in different seasons. The same is true of stocks — certain stocks do well when the economy is thriving and others outperform when the economy is soft.
Read more here: The Arizona Republic
Investing is like an essay exam rather than a multiple-choice quiz. Essay answers are more nuanced than multiple-choice — more like an informed judgment call than the unassailably right answer. As a professor, I give my students essay questions because they create a complete picture of what young scholars know and don’t know.
Similarly, investing, like real life, rarely presents us with questions that are as straightforward as those on a multiple-choice test. That is why I am interested in investing in the stocks of well-managed, industry-leading companies; I don’t have to know “the answer.” I simply need the confidence that management is moving the company in the right direction no matter the short-term trends of the market. These companies won’t always generate positive returns, but the dominant ones in each industry have a much better chance of succeeding than the second- and third-tier companies. I also know I increase my odds of success if I select the most attractively priced stocks with the greatest potential for total shareholder return.
Let’s examine two leaders in two very different industries with similar price-to-earnings (p/e) valuations. Click here to read my column in its entirety: The Arizona Republic
If you are a toe dipper or an inch-er when it comes to getting into cold water then you understand dollar-cost averaging. A prudent strategy in rising and falling markets. Below is my latest column.
Perhaps by now you’ve compiled your stock “watch” list. Presumably it contains the names of companies whose products or services you admire.
In his book “One Up on Wall Street,” fabled growth investor Peter Lynch advises that the average investor can produce enviable returns just by looking for companies with products they know and use every day. Lynch goes on to say, “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.”
Let’s take heart in his words as we press on.
Most likely you are wondering if you should be investing now, with every headline screaming that the market has hit historical highs. Many individual investors fear that just as they are jumping in, the “smart money” is jumping out.
Read more here: The Arizona Republic
If there is one thing you need to remember about investing, it is this: The stock market is a tug of war between fear and greed.
Whenever possible, we want to buy from fearful sellers and sell to greedy buyers. My experience confirms that the best time to buy a stock is often when investors are running for the exits. It is also the hardest time to do so. That is why I keep a watch list of stocks I want to own (yes, I really do keep a list and so should you) and do my best to learn a great deal about the company before I make a purchase.
Read the rest of my column here: The Arizona Republic
Last week’s column on dividends offering the best indicator of company performance prompted a reader to ask an excellent question: Why don’t we hear more about dividends on the financial news networks? Frankly, because they just aren’t very exciting — like watching paint dry or tortoises race or glaciers melt.
The rest of my column can be read here: The Arizona Republic
This week I talk about the multiple benefits of owning stocks that pay a dividend. Not only does the dividend contribute to your total return but it provides you with insight from the management team and the board. Please read here: The Arizona Republic
On August 21st of 2013, I wrote a syndicated blog post for The Motley Fool which I linked here. In that post I suggested that investors consider building a position in the extremely unpopular shares of Oracle Corp (ORCL). At that time it was difficult to find a Wall Street analyst or financial news pundit with a positive comment on the stock. Most were convinced that legendary CEO, Larry Ellison had suddenly lost his mojo. He didn’t understand the “cloud” they exclaimed and wasn’t likely to recover from the misstep. Having watched Ellison and the company for some twenty plus years, I was unwilling to sell him short. He is a tough competitor and an outstanding leader. Love him or hate him, you simply can’t argue with his track record in building wealth for himself and his shareholders. I suggested in my post that he understood cloud computing and was in the process of making strategic acquisitions to right-size the company’s future.
Since that post the total return for the stock is a positive 28.5% versus 15.7% for the S& P 500.
Lest you think I am declaring victory, I am not. I’ve been investing too long to make that mistake. There will–at some point–be another problem. The stock will likely go through another period of difficulty. Which may just provide another opportunity for savvy investors to buy. When we own shares of great companies–what I call stocks to own for a lifetime– problems often create an investing opportunity. The question we learn to ask when these companies encounter operating hiccups and stock price declines is: does the management team have the financial and strategic wherewithal to solve the problem? The Wall Street crowd obviously has doubts which is why the stock price has declined, but often management is in the process of fixing the problem just when investors expectations and the stock price reach their nadir. Remember that Wall Street and the financial news pundits have a short-term focus. Ours should be long-term.
And, frequently, their disaster is our opportunity.
Click here to read my current column in The Arizona Republic. This week we are exploring the “Buggy Whip” factor. As technology and fashion trends change, savvy management teams will avoid going the way of the buggy whip–into extinction–when automobiles replaced horse drawn carriages at the dawn of the last century.
We take a close look at Coach. The company is facing tough competition from Kors and Kate Spade and provides us with an excellent, real-time example.
Feel free to post a comment, ask a question or invite others to follow along.
Until next week,
Last week our assignment was to create a list of companies we might be willing to invest in. This week my column discusses a key criteria to analyze in those companies when determining where to invest. See my regular Wednesday column in The Arizona Republic.
Don’t let the market pundits scare you out of the market. Keep focused on owning great companies for a lifetime. Here is my latest column in The Arizona Republic.