Tuesday, June 28, 2011

Playing the Waiting Game

Some stock purchases can be real exercises in frustration.
You buy. You wait. You don't make any money. You don't lose any money. The stock's price fluctuates 5 or 8 or 10 % north, they returns south, leaving you in the red.
These are tough stocks to own, because it's hard to ever decide what you want to do with them.
This was my experience with Activision-Blizzard (ATVI). It was one of my first stock purchases, back in 2009.
At the time, it looked like a smart bet. The market was starting to recover, and ATVI looked attractively priced. It had good growth, was fast becoming the leader in the gaming industry. It had the Call of Duty and Transformer and Guitar Hero games in its library.
It had great games in its pipeline. 
The company had solid financials. It had the recommendation of a Motley Fool investing service team, and the Fool's massive community of investors had the stock ranked at the highest possible 5 stars.
But there was more than that. What first attracted me to the video-gaming stock were my personal experiences. I'm not a gamer myself. In fact, I think I've played a video game once since I was in college the mid-90s.
But I'd been amazed to listen to men and women in their late 20s and 30s discuss video games with great enthusiasm.
All that had me sold on Activision. All signs said go, and I was excited.

Going nowhere, fast
I bought.
And it promptly did nothing. And it still hasn't. Take a look at the view of ATVI's performance vs. the S&P 500 since then.
After more than a year of owning the stock, I sold out of frustration. My money was better spent on other investments.
Was buying ATVI a mistake? I don't think so. Sometimes, the preponderance of the evidence says "buy," but things just don't happen they way they should.
In ATVI's case, the company may have put itself in a great situation as a market leader with a huge stable of popular games. But it had little room left to advance.
To its credit, the company instituted a dividend. But it was a small one (1.4% yield) and not enough to keep me interested.

Is it 'game over?'
My mistake here, if there was one, was not looking back at where ATVI had been. The stock was a 10-bagger from 2003 to 2008. It's peak over $18 a share was 10 times what it was selling for just five years earlier.
Although all that adult enthusiasm over video games seemed new to me, it wasn't new to all those people playing. Neither was it new to a lot of investors who already cashed in on ATVI.
The great video-game rush might have had already plateaued.
If it was any indicator, ATVI announced soon after I sold that it would stop making its once-super-popular Guitar Hero game.
By the time I started playing ATVI, the music was already over.

Is the gaming a good investment, or is money there dead as the victim of a shoot 'em up? Should I have held on to ATVI? How would you play it?

My portfolio down 1.98% on year. Have a look here.

Friday, June 24, 2011

When It All Starts Sounding Greek to Me

When I don't feel like listening to Howard Stern, my Sirius satellite radio is often tuned to CNBC.
I figure it helps to keep me apprised of what's going on in the financial and economic worlds. Sometimes, it sheds light on the market's daily movements. And it's often entertaining to hear seasoned money managers arguing their polar opinions about stocks and the market's direction.
There's been a lot of talk lately about Greece, whose economy, of course, is on the edge of financial collapse, and the ramifications of that happening.
It's made to sound like really important stuff when it comes to investing. But is it?
How much does a long-term, individual investor really need to know about things like short-term monetary policy and international situations? For this, I defer to Peter Lynch, one of the greatest investors in U.S. history.
"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes,"  is Lynch's famous quote on the subject.
Keeping apprised of world news is good practice regardless of whether you manage your investments or not.
But for long-term investors (not day-traders), focusing too much on the buzz of Greek debt or the possibility of another round of quantitative easing or what analysts have to say about the direction of the market can put you at risk.
It's like distracted driving.
Sure, you can get away with a phone call or a radio fiddle here and there.
But the more time you spend texting, the more likely you are to miss a turn, or to find yourself suddenly parked on someone's front porch.

I've had a few of those experiences over the past couple years. 
Two summers ago, I listened intently to a debate about the speed of the economic recovery. An analyst on CNBC predicted a long struggle ahead for railroads. The slow  recovery would be too much weight for the locomotives to pull.
I'd been holding on to shares of Norfolk Southern, which I'd bought near the low and really liked in the recovering economy.
But suddenly, in less than 30 seconds, my confidence started eroding.
This guy had a lot more knowledge and insight than me about the economy.
Within days, I sold.
And over the next couple weeks, the stock turned upward. It hasn't looked back. Since the day I sold, Norfolk Southern has doubled. That's better than twice the S&P's return.
I also would have collected about 7% or more in dividends.
Talk about a nice haul.

Does it help, or hurt?
Sometimes, as individual investors, we get caught up in economic news that may be weighing down stock prices.
It's easy for your confidence to get shaken when the market's tumbling, there's a lot of scary news out there, and voices are coming from every direction to make predictions and prognostications.
It's hard to get above the din, and that can lead to poor choices, like it did when I sold Norfolk Southern.
These days, I try to remember that Lynch quote when I find myself thinking too much about economic concerns. I also think back to an interview I did with a guy who ran an investment firm.
I was surprised when he told me his firm didn't like to rely on the advice of economists.
"Why not?" I asked.
They'd tried, he said. They found out it hurt more than it helped.
When it comes to macroeconomics, maybe there is such a thing as an investor knowing too much.
Maybe we reach a point where it all sounding Greek actually might be a good thing.

How much attention do you pay to economic issues?

Monday, June 20, 2011

Is a Tall, Cold One the Cure for These Market Blues?

Sam Adams is not my favorite beer.
But Sam Adams is good beer. I like good beer. That's why it felt nice adding a few shares of Boston Beer (SAM) to my portfolio a little while back.
Of course, liking good beer was not the only reason I bought some shares of SAM. I also liked the story. I liked the growth. I liked the possibilities, and I liked the company's chairman, Jim Koch. You may know him from the commercials.
Koch has had Boston Beer brewing up some frothy growth in recent years.
Annual revenue growth since 2007 has rung in around 12%, Earnings over that period have grown an impressive 38% a year. It posts wide margins and also has virtually zero debt.
The numbers tell a great growth story.
But it's the story behind that story that interests me more. Over the past 10 or 15 years, the beer-drinking world has changed.
Not long ago, there were Bud/Miller/Coors drinkers and there were beer snobs and there weren't too many in between.
Not anymore. And Sam has been able to appeal to drinkers meandering toward the center from both poles.
Its flagship Boston Lager and Summer Ale are plenty palatable to those with less adventurous taste buds. And its breweries have been hard at work offering a wide variety of brews to keep those beer aficionados interested.
Do a Google News search for the company. Most of the stories you'll find are about beer. They're not financial stories. I like that. It seems a bit of reassurance that this stock is not overhyped.

The bad
Sam's sales growth has slowed since its peak in the spring of 2010. That could spell trouble for a stock that was being priced like a fast mover.
Here's a quick look at the annual sale growth charts through December:

Now the look of the last 5 quarters:


There's some speculation that SAM's run as a growing "craft" or small brewer has come to an end. That would indicate slower growth in the future. Here's one take on why that might be. Here's another view.
The company is also dealing with higher grain and hop prices. With competition intense among brewers large and small, its ability to raise prices would appear limited.

The bottom line
Sam has disappointed recently and that has me concerned. But its stock has pulled back in price from a $101 peak to its current $86.16. It now sells at a price-to-earnings ratio of 24.9. That's not much greater than the 20.4 that Budweiser parent Anheuser-Busch InBev (BUD) sells for, and that's a much larger producer with far less room to grow in coming years.
From that perspective, Sam does not look overpriced. It also does not have the appetizing appeal of a tall, cold Revolutionary Rye Ale, either.
The company needs to continue growing, and that means it needs to continue appealing to those craft beer drinkers with new brews that draw their interest.
I have faith that Koch will keep the company moving in that direction.
But my affinity for good beer and appreciation for Koch's efforts probably caused me to pull the trigger on SAM too early this spring, when I paid about $89 a share. I don't want to make the same mistake again, especially since the stock has been falling.
I'm in no rush to add to my shares of SAM, but I am keeping it on my radar screen this summer.

What do you think of Sam Adams stock? How about its beer?

Friday, June 17, 2011

These IPOs Are Just Too Exciting For Me

There's been a lot of buzz about social-media companies offering shares of their stock to the public.
So much news is generated by these initial public offerings from companies like LinkedIn (LNKD), Pandora (P) and Groupon, that I hear people who don't even trade stocks asking how they can get in.
I wouldn't touch one of these IPOs. At least not anytime soon. Sure, I'll miss out on the buzz and the chance to hold a piece to the next big thing.
But I like to keep in mind, when it comes to investing, boring is often better.
History is on my side here.
The most popular IPOs often fall flat on their faces over the course of a a few months or a year or two.

Back when Priceline.com (PCLN) came onto the market back in 1999, it quickly shot up to a price of more than $974 a share, doubling off its initial price in just a couple weeks. It promptly fell back down to Earth, however, and within two years, it was trading for a measly 8 bucks.
Priceline is now a consistent earnings producer with growing profits and widening margins. But it took many years to establish itself as such. Investors who could not wait paid a dear price.

That's reason to cringe over all the excitement about the LinkedIn IPO. Its shares were quickly selling for more than $102, even though the company has yet to establish any record of earnings.
Now that it has come down to about $65, investors are still left asking: Is it now a bargain, or still wildly overvalued? Who's to know?

Take a look at some of the charts from some popular recent IPOs as investors try to determine what their shares should be selling at:

First is Demand Media (DMD)

Now, LinkedIn

General Motors (GM)

Motricity (MOTR)

I don't know about you, but none of those high-flying IPOs look like they've made very good investments to me.

That's not to say these companies won't someday make good investments. But why not wait until they establish themselves and you can see for yourself what kind of earnings these companies can produce over time?
Those who took a wait-and-see approach on Priceline would have avoided catastrophic losses in 2000 and 2001, then picked up shares years later and rode them to terrific profits.

Good things often come to those who wait.

Have you invested in an IPO? What was your experience? If not, would you?

Wednesday, June 15, 2011

Thanks, VFCorp! My Earnings Are Bound For Buffett

I would have liked to see Timberland grow and make me money for years to come. But I'm not going to complain about the 73% return VFCorp delivered me by buying the boot maker earlier this week.
Now, I've got some money burning a hole in my TradeKing brokerage account.
Figuring out where to put new money is never easy. There are always going to be what ifs before and after you buy.
I've learned I have to be satisfied with what I believe is a smart choice. I've also learned to love stocks research, and I'd recommend learning the basics to any investor. It's the only way smart choices can be made. (Unless you're paying someone to make them for you.)

For me, research has come to involve a few things:
  • Taking a look at companies' fundamentals
  • Thinking long and hard about what the companies do, where they're headed and what their prospects for growth are
  • Reading about what people a lot more experienced and knowledgeable than me have to say about these stocks

Buying Buffet
I'd been eying Warren Buffet's Berkshire Hathaway since I started investing.
I never bought BRK.B because $3,500 was out of my price range.
But I vowed last year, when the stock split, that I would revisit it someday.
That day's today.
And the stock looks pretty good to me.
Buffett's venerable Berkshire trades at a price-to-book-value below its peers. In fact, it may be selling at its lowest price-to-book value ever.
Berkshire's stock price has trailed the S&P since the stock market collapsed in Sept 2008.
What's more, it's now selling at a price below what it sold at after last year's stock split.
Yet Berkshire has out-paced its peers in sales growth over the past five years.
As this Motley Fool article notes: "... right now there's no Buffett premium. ... There's no real premium of any sort here."
Hard to imagine the vaunted Berkshire Hathaway -- once untouchable to investors like me -- selling at a discount.
But that's what I see here.
But perhaps the strongest selling point for me is Berkshire's track record. Buffet and his lieutenants have delivered their shareholders a great return for decades. Even if you go back over the last five years, Berkshire has returned more to investors than its peers by a ratio of about 5 to 3.

The bad
The company has hit a rough patch, returning less to investors last year than its industry average.
It's also been mired in controversy over former top executive David Sokol's purchase of Lubrizol shares just before he convinced Buffett to buy the company.
That hasn't helped the company's image with investors.
On top of that, there is concern over the ages of Buffett and right-hand man Charlie Munger. Both are octogenarians.
That means both are approaching their twilight, and investors worry that when a new day dawns for Berkshire under new leadership, it will never live up to the one that's already passed.

What others have to say
Motley Fool's Stock Advisor ranks Berkshire as a buy, and Matt Koppenheffer's article I referred to earlier echoes that call, albeit less bullishly.
Morningstar's Ultimate Stock Pickers include the company in their top 10 holdings, and at least three of those ultimate pickers are adding to their Berkshire holdings.

The bottom line
I'm willing to bet that Sokolgate will pass. I'm willing to wager that the line of succession at Berkshire is strong. Smart leaders surround themselves with smart people. Buffett will be handing the reins to someone he has great confidence in.
And when I strip away those concerns, I see a good deal on a great stock.
I like Berkshire here. And I'm giving it a prominent place in my portfolio.

How do you feel about BRK.B? Is there someone you'd trust to better invest your money than Warren Buffett?

Monday, June 13, 2011

When Does Investing Turn 'Unethical'?

A friend of mine who's just begun sinking some money into stocks was looking at picking up some shares in cigarette-maker Altria (MO) as a good dividend play.
"One question," he said. "Would that be unethical to invest in?"
I had no easy answer.
This is something every investor must wrestle with to some degree or another.
It's easy for folks who don't invest their own money to throw stones at those of us who choose exactly where it goes.
Seldom does a public conversation about stocks go by that someone isn't telling you to "buy solar" or some other way of "doing good" and not bad, with your dollars. 
Not long after the Massey Energy coal mine disaster killed 25 miners last year, a read an investing columnist call the stock a good buy in response to a reader's question.
His answer prompted a passionate response from a reader who happened to be a university professor. The reader found it offensive that the "wealthy" investing class would make money on a company that risked its workers' lives the way Massey did.
As I read it, I couldn't help but wonder if the the prof thought about where his own money was invested. He is guaranteed a pension upon retirement. Massey was in the S&P 500 until just a couple weeks ago when it was bought out. The odds are pretty good that professor was benefiting from Massey, too, even though he isn't part of the investing class he envisioned.

Every portfolio has 'em.
When I look at my own portfolio, there are ethical questions. I'm invested in Chesapeake Energy, whose natural gas fracking is the subject of much environmental concern here in Pennsylvania.
I don't like that, and I'm hopeful some new environmentally friendly fracking fluids help clean the process up.
Just the other day, I read a story about Buffalo News editorial staffers being asked to sacrifice pay in order to preserve jobs. The paper was threatening a 20-25 percent reduction in staff. All at a time when it was turning a $16 million profit.
As a news reporter dedicated to providing good coverage to readers, cutbacks like these are tough to read about. Cutting staff often diminishes the quality of coverage. And of course, it hurts employee morale.
But I also see management's side, mostly because the paper is owned by Berkshire Hathaway (BRK.B). Berkshire became one of my holdings earlier this year, and -- newspaper cuts or not -- I plan to add to what I have soon.

About those cigarettes
It's nice when you can feel good about the company you own, about the products it makes and the ways it goes about making them.
I have some of those in my portfolio, too. Sam Adams beer. Timberland. Cytori Therapeutics and Gilead Sciences. They all do good in their own ways.
But that can't always be the case, which brings me back to my friend's question. Would it be ethical to invest in a cigarette company? That's something only he can decide. People are going to continue to smoke. Altria will continue to take their money, and it will continue to hand back what's now close to a 7% dividend to those who hold shares of Big Mo stock.
If you are uncomfortable holding the stock, don't own it.
If you feel comfortable that you're not contributing to society's ills by keeping a piece of Big Mo for its high yield -- or you just don't care -- buy some.
What if you're feeling pretty good about it, but still have some lingering doubt that you might be contributing to people taking up the habit?
Pair it with a piece of GlaxoSmithKline (GSK) or Novartis NVS). Both make a nicotine patch.
That way, you're also helping people quit.

Where do you draw the ethical investing line?

Friday, June 10, 2011

No Pennies from Heaven Here

The Securities & Exchange Commission halted trading on 17 penny stocks this week.
It says it simply doesn't have enough evidence that the companies are not frauds.
Those who hold shares in the 17 firms are left in the lurch. Shareholders cannot sell the stock they own right now if they wanted to. And when or if trading resumes on those stocks, they're almost sure to take a crushing blow.
Hardly seems worth the risk.

Big Returns, Fast
I understand the allure of the penny stock. In fact, I had a bit of a penny-stock experience myself back in 2008, when I really new nothing about stock investing and probably had no business being in the game.
The penny-stock sales pitch is simple: You buy thousands of shares of something that cost cents apiece, and in little time, it can double, triple, quadruple or more.
Web and email advertisements tout huge gains and more to come.
"Penny Stock MILLIONAIRE!" one screamed.
But while the chances of a huge score are there, they are very, very small.
What's more, many of those companies hyping the penny stocks dump them once they've convinced enough investors to buy and the price has increased.
They take the profits, you take the fall.
Seems more like playing roulette than investing.
Still, I know smart people who take risks on penny stocks. In fact, a former colleague of mine contacted me to say he owns shares in one of the 17 that have had trading halted. He doesn't own a lot, but enough to have him concerned about what will happen to his money.
I wouldn't want to find myself in those shoes.

A Near-Penny Experience
I've never considered myself a conservative investor. I have bought my share of speculative stocks. Stem-cell biotech Cytori Therapeutics (CYTX) still has a place in my portfolio. I've owned stock in a Chinese fertilizer company and a Chinese drug store chain.
All three have been roller-coaster stocks, with impressive climbs and hair-raising drops.
But the stock I've had that was toughest to own was SIRIUS Satellite Radio (SIRI.) While not a true penny stock, SIRI was selling for around 45 cents a share on the NASDAQ when I took the plunge thinking it was a steal.
Much to my chagrin, it was soon selling for a nickel.
And not only that, it was teetering on bankruptcy.
I washed my hands of SIRI later on, after I'd learned a little about analyzing a company's fundamentals, and realized I didn't like SIRI's at the time, at all.
I didn't lose any money on the stock, and I considered myself lucky.

Lure of the Longshot
Since then, I've learned that good investing is a lot less about the dream of scoring an easy buck and more about the hard work of earning money.
That's not to say it isn't still fun. And I think there's room in a portfolio for a speculative stock like CYTX, a growing company with bright prospects and a low per-share price.
If I ever find myself wanting a bigger thrill than that, I'll bet a long shot at the track.

Wednesday, June 8, 2011

Running for Cover Has Its Price

It's been a rough month or so in the market, and my portfolio has been no exception. In fact, I've been running downhill faster than the S&P. 
It's hard to watch these losses, but I've learned two things about these stretches over the past couple years.
  1. They are tough to take when you focus on how your portfolio is dwindling.
  2. They give investors great opportunities to add to their portfolios and make more money down the line.
One of the ongoing struggles for investors trying to make money in the stock market is fighting your own instincts.
Good investing is often counter-intuitive.
When the market dives and you feel the hurt, your gut tells you to start pulling money out. Then, it tells you to wait a while before stepping back in.
Intuition keeps us out of a lot of trouble, the same way it benefits animals who look for cover until a potential threat is safely out of sight.
But in investing, we should often be doing just the opposite. We should be using those market pullbacks to beef up our holdings at discount prices.
That takes conviction and discipline.
Unfortunately, few of us have enough of those qualities, and it eats away at our profits. Matt Koppenheffer has a nice take on the topic on the Motley Fool.
We seem to be wired to get excited about our investing when stock prices are chugging along a steady upward slope, even though history might tell us that's the time to be most cautious about investing our money.
I could have gotten shares of a number of different investments I own if I'd just been patient and waited for a pullback in price.
Nothing's worse than putting $1,000 of hard-earned cash into a couple stocks only to see them fall 10 percent in a few weeks after.
That's been the case for me with a few investments. Dolby Labs is down 12% since I bought. Berkshire Hathaway is down more than 10%.
That's been hard to watch.
But becoming gun-shy won't help make up for the losses. Becoming opportunistic will.
Take a look at this chart of the S&P 500's recovery since the March 2009 lows.
Since the market began its march out of the 2008 crash (the lowest point on the chart in March '09), we've endured at least three pullbacks larger than the one we're in.
Those were times when the market paused to catch up with itself, to set new prices on stocks -- generally a bit lower, but more accurate of the companies' true value.
I've heard these corrections called "healthy" by people much smarter than me. I trust those opinions are right.

I don't know how long this slump will last, or how low the dip will be.
But I know I want to have myself in a better position when prices start making their inevitable climb north again.
It's time to start shopping for what I want to buy when things are on sale.

Sunday, June 5, 2011

Expect the unexpected

I had planned to start re-reading The Motley Fool Investment Guide Sunday, both to brush up on its lessons and to share some on the blog.
I tossed my paperback copy onto the passenger's seat of my Hyundai when I set out on some errands. I figured I'd stop and grab a park bench sometime, and enjoy the afternoon sunshine with my book for a while.
I never made it to that park bench.
Instead, I opted to park the car and venture out for a long bike ride.
Well, that was cut short by an unexpected thunderstorm. It struck about 45 minutes into my ride. The winds kicked up. The lightning grew closer by the minute.  And as I raced up the last mile toward my house, the sky opened. It was quite the downpour.
I made it safely home, with a soaked shirt, but none the worse for wear.
Relieved, I stepped inside my house and listened to the rain rumble on the roof for a bit.
Then I realized I'd left my sunroof open.
Wide open.
It was sunny, after all, when I set out. People were strolling around, walking dogs, sitting along the Susquehanna's grassy riverbanks, just minutes before the storm hit. 
I guess it wouldn't have hurt to take a look at the weather forecast.
Now, The Motley Fool Investment Guide sits on a shelf, swollen like a sponge as it dries out.
The re-read will have to wait.
There may be an investing and money-management lesson in here somewhere, though.
Expect the unexpected.
Even when the market is looking bright and sunny and calm, storm clouds might not be that far off, and they can roll in very quickly.
It never hurts to take extra precaution, to pause and weigh your risk before making that next investment decision.
Because a seemingly innocuous decision, if not well-thought out, may leave you more vulnerable than you first thought.

Friday, June 3, 2011

How do you know what to buy?

I admire investors who adhere to strict criteria for their investments. Value investors who set out parameters on price-to-book-value and price-to-earnings ratios and don't deviate. Growth investors who do the same with revenues and earnings.
I've never clung to any strict guidelines or any single methodology.
And unlike the manager of a "value" mutual fund, I don't think lay investors like you or I have to.
It seems most important to simply be opportunistic.
Some of the picks in my portfolio below came from Motley Fool's Stock Advisor newsletter. Teradata, my biggest gainer at 191 % to date, falls into this category. I'd never heard of the company until I read about in SA two years back.
Some I researched after reading an article in Money or Barron's, or even hearing Jim Cramer call "Buy! Buy! Buy!" Gilead turned up in a bullish article, and I just read another this weekend.
Others were found using stock screeners, looking for solid growth and earnings and a low price-to-earnings, then put through some further research.
National Presto, the maker of kitchen gadets, bullets and diapers, falls into that catergory.

Confidence is key
Sometimes, the stars line up. I liked Ford's turnaround story. And soon after I started watching the stock, it won the recomendations of both SA and Cramer.
Hasbro had risen to the top of my buy list when it showed up as an SA pick.
I like it when that happens. You should be confident when you buy a stock, and nothing instills it better than seeing people smarter than you thinking along the same lines.

Diversify your sources
Over my time investing on my own, I've found it crucial to keep myself exposed to a variety of sources. When people considering stock investing ask, I advise they do the same.
  • Read financial publications.
  • Frequent sites like the Motley Fool that offer insight and fun reading to make things easier. This should be fun as well as rewarding.
  • Get yourself some knowledge on fundamentals. Stock Investing for Dummies is a great starter reference.
  • Learn your way around stock screeners. Every financial website seems to have them now. They are a great tool that the web has put in the hands of every investor. 
  • And yes, watch Jim Cramer. He may come off wacky, but there are lessons in his edu-tainment, as well as continual nagging reminders. Diversify. Research. Don't let pride get in your way of making money. They're all there, just tucked in between "Booyahs!"

Wednesday, June 1, 2011

My Portfolio June 1

Here's a look at my portfolio as of the close of the markets June 1. (If this is not the most recent month, you can find it in the Blog Archive on the right rail.)

A number of these stocks have taken a brutal beating over the past several weeks. Timberland is 31 % off its high. Dolby, down nearly 10 %. Boston beer is off 12 % this month, and National Presto is down some 20 % since March 1.

That said, I like this collection of stocks moving forward.