Special Deal on The SmallIvy Book of Investing ($9.99 through Christmas)


The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy

The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy

When I wrote The SmallIvy Book of Investing, my goal certainly was not to get rich (and believe me, I’m not).  Instead, I wanted to provide a way for individuals and families to learn the secrets to becoming financially independent.  You see, there are a lot of people who give information on budgeting and getting out of debt, such as Suze Orman and Dave Ramsey.  There are also a lot of books on trading stocks, real estate, and all sorts of other things.  There are even some good books on setting up your cashflow to become wealthy (see Rich Dad, Poor Dad).

The thing that was missing was a book that tells how to use investing to grow your wealth.  The budgeting books have great advise for getting out of debt, but then you’re left treading water.  The books on stocks are either the mechanics of buying and selling stocks, war stories from market professionals, or books advocating some strategy.  I wanted to create a book that tells what to do next once you’re out of debt.  I wanted to tell how to use investing to grow your wealth exponentially.  I believe that any middle class person who is willing to make some minor sacrifices can become financially independent within their working lifetime.  This book shows how.

What I wanted to create was a book that gave the whole plan.  This includes things like the basics of different types of investments, budgeting and configuring your cash flow to allow you to invest, and the basics of retirement investing in 401K plans and IRAs.  It goes well beyond this, however, giving the specific things you need to be doing at different stages of your life to become financially independent in your forties and then live a very comfortable retirement and be able to leave a legacy for your family.

I want to do what I can to end the behaviors that result in people getting to retirement age with nothing to show for it, despite having had millions of dollars pass through their hands during their working careers.  I want people to use the money they make to provide protection for themselves and their families so that people aren’t one paycheck away from the welfare rolls anymore.  Ideally someone would read the book when they were just starting college and follow the plan so that they would not need to experience the stress that comes from living paycheck to paycheck.

So that more people pick up and read the book, I’m dropping the price to $9.99 bewteen now and Christmas on the Create Space e-store.  You can purchase a copy here.  Copies will also be available on Amazon, although the price drop may not be reflected for a few days.  Please consider buying a copy for a recent college graduate or high school senior, or maybe buying a copy for yourself.  I truly hope it makes a difference in many people’s lives.

The Best Way to Invest in Individual Stocks


Individual stock investment, where you buy shares in individual companies instead of putting money into mutual funds, is often discouraged by financial planners.  They point out that there are all sorts of professionals out there who have better information, better technology, and better connections than you do.  They also point out that most professional money managers don’t do as well as the average returns of the markets.  They point out that investing in individual stocks is risky.  And they are right.

And yet there are people who do very well investing in individual stocks, including people who become millionaires.  I remember a story I heard at a shareholders’ meeting where a woman who had held shares of the company for many years called up to complain that the price of her shares had gone nowhere.   The company, whose shares had split many times (meaning they cut the price of the shares in two but then issued each person two shares for each share he owned), figured out how many shares she now owned since she had held the company for so long.  The woman calling to complain about the lack of performance of the company was shocked to hear that she was, in fact, a millionaire.

While this is not the norm – not everyone who invests $10,000 in one company becomes a  millionaire – there are still a lot of people who do become millionaires and even multi-millionaires by investing in individual stocks.  There are many who have returns much better than they would have seen if they had simply invested in mutual funds.  The numbers are much higher than the number of boys who grow up and get a job in the NFL or people who win the lottery.

The difference is the way that these investors approach individual stock investing.  They do things to put the odds more on their sides – things that professional money managers just can’t do because they have too much to invest and are driven for quarterly results.  Successful individual investors put themselves in a position to benefit when they are right and the companies they buy stock in flourish.  They are what I term serious investors, in contrast to the thousands of people who say they are investing, but really they’re trading or speculating.

If you want to put the odds in your favor when investing in individual stocks and be a serious investor, here are some steps to take:

1.  Set up a back-up plan.  Before you ever consider investing in individual stocks, you should take the actions needed to protect yourself should things not work out well.  This means putting enough money into retirement accounts, such as 401K’s and IRAs, to provide the income you’ll need for retirement and investing these dollars in mutual funds.  You should invest between 10-15% of your income for retirement, with at least 10% going into mutual funds.  This will put you in the position to have a safe and secure retirement, far better than that of many of your coworkers who don’t save for retirement until very late in their careers, even if none of your stock picks work out.  This also means that your need for retirement income won’t affect your individual stock investments.  You won’t need to sell stocks just because you need to keep the heat on in the winter.  Your retirement accounts are your bedrock foundation.  Your individual stock purchases are the skyscrapers you build upon your foundation.

2.  Pick stocks like you were becoming a partner in the business.  If you were looking to make a large investment in a private business, you wouldn’t find a business to invest in by looking at the prices people recently paid for businesses and selecting one that had gone up or down.  You might use that information when evaluating a fair price for your stake, but the price movements alone wouldn’t be the main reason you would buy in.  In fact, if the price had recently doubled, you might be wondering if you would be paying too much and pass, waiting for a business in which you might get a better entry point.

Instead you would be looking at things like if the business was turning a profit and if that profit was growing.  You would look at the people running the business and see how skillful they were at their jobs.  You would be looking at how big the market was that the business was involved in and what opportunities the business had to expand.

You should be looking at the same things when picking a public company as an investment.  It is true that your share of the company would be a lot smaller if you buy into a publicly traded company with thousands of employees than it would be if you were buying into a local pizza restaurant, but the ideas are the same.  You make money when the business grows, and the things that make a business grow are a good management team, a good product, growing profits, and opportunities to continue growing.

3.  Be ready to hold for a long, long time.  How well a business will do over a period of a few weeks or even a few years is very unpredictable.  This is because all sorts of factors can influence the price.  The economy may boom or enter a bust cycle.  The price of energy may rise or fall.  The government may create a new regulation or remove an old one.  The company may make a misstep and see earnings decline, or they may make earnings as predicted but investors expected earnings to be even higher.  The price of a stock over short periods of time is as difficult to predict as predicting when it will rain.

Over long periods of time, however, well-run companies that grow earnings will see their share prices increase.  They will grab market share, sell more products, and become a more valuable company.  You put the odds in your favor by holding onto stocks for a long period of time, waiting for the company to grow and the stock price to grow accordingly.  You don’t need to be right about when the stock price will do well, just that it will eventually do well.  Be prepared to hold for ten or twenty years or longer, giving time for your company to grow to its full potential.

4.  Buy enough shares to make a real difference.  If you had bought 100 shares of Microsoft during its first year of active trading, then held onto your shares and never sold any, you would be a millionaire today.  The same thing goes for Home Depot, Wal-Mart, and a few other exceptional companies.  There are a lot more companies, however, where your position might be worth only $100,000 today.  You increase your chance of doing really well and having life-changing investments when you buy enough shares to really make a difference when share prices increase by 100% or maybe 500% instead of only the few times when they increase by 5000% or more.

While you should spread your investments out into a few different companies (maybe 5 for a $50,000 portfolio, 10 for a $200,000 portfolio, and 20 for a $500,000 portfolio), you should concentrate your investments such that a 100% increase in price would make a serious impact.  Usually this is a position of 500 to 1000 shares.  For example, holding 1000 shares of a company that trades for $30 per share would result in a gain of $30,000 if the stock went up to $60 per share.  Contrast that with a 100 share position, which would result in only a $3000 gain for the same increase in price.

That said, positions should not be so large so as be financially devastating should a position collapse, because that happens with individual stocks.  If you have a million dollars to invest, holding a $50,000 position would be reasonable since the loss of $50,000 would be painful, but you could recover from it with your other positions.  If you only have $50,000 to invest, that would be a different story since if you lost the entire position it would take a decade or more to recover.  You should therefore limit positions to maybe $10,000 or so.

5.  Sell when the company is no longer set for growth, not because of the share price.  Once again, if you bought into the local pizza restaurant, you wouldn’t be looking around to sell when the company went into a slump.  You also wouldn’t be looking to sell when the business just started to pick up.  You would only sell when 1) you needed the money or 2) the restaurant either obviously couldn’t make it or there was no more room for growth (and even then you might hold on if it was generating a good income stream).  Public stocks are the same way.  Movements in the price are not reasons to sell.   Sales should be done when you need the money or something fundamental has changed at the company, such that the money could be better invested elsewhere.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Five Secrets to Handling Money


Maybe you’re from a family that has never been good at handling money.  Most families aren’t.  Or maybe your family does handle money well, but none of that knowledge has been passed to you.  The truth is, the two things parents rarely talk to their children about are money and sex, leaving their children to figure both out for themselves.

In reality, handling money really isn’t all that hard.  It can be boiled down to just a few fundamental ideas.  The rest is all details that have a minor effect compared to the fundamentals.  Get those fundamental ideas right and you’ll be set for a comfortable, worry-free life.  Here are five secrets to gaining and handling money:

1.  Make yourself valuable in your career.  The amount of money you can earn is directly related to how much value you produce for your employer, or more accurately, her customers.  Going to college is just a way to learn things to become more valuable.  It isn’t the piece of paper that earns you the higher income.  It is what you can learn and provide to customers from going to college.  This is why an engineering degree can lead to $70,000 jobs right out of college, while a French Art History major may have trouble earning more than they could have right out of high school.  Going to trade schools and just learning in general also makes you more valuable, and there are a lot of plumbers who make as much as Ph.D’s.  Also, showing up on time ready to work and being productive all day makes you more valuable, and thereby earns you a higher salary.

2.  Spend less than you make.  To have financial security, you need to store up some of the money you’ve made so that it is available for when you are without a job or, eventually, retired.  People who do well are those who prepare a budget, limit their spending so that they can save 10-20% of their earnings each year, and put that money away.  This may seem like a simple concept, but few people do it.

3.  Use the power of compounding to work for you.  Albert Einstein wondered at the power of compound interest, and for good reason.  A small sum invested and allowed to compound grows exponentially, meaning faster and faster as time passes.  The larger it is, the faster it grows!  Once you’ve saved the money, you need to invest it where it will grow without any other effort on your part.

4.  Don’t buy things you can’t afford.  While compound interest is great when it’s working for you, it will work against you just as well when you are the one paying the interest.  The payment on a small loan may seem perfectly manageable, but add a few of those small loans together with interest begetting interest and you’ll soon find yourself in way over your head.  If you don’t have the money to pay cash, you shouldn’t just whip out the credit cards.  People who do well financially save up and pay cash.  Better yet, they save up and then let that money earn the interest needed to make the purchase.  Then they have the stuff and still have the cash.

5.  Invest where you can get the maximum rate-of-return.  Compound interest doesn’t improve just a little when you increase the interest rate a little bit.  It increases a lot.  Saving at 1% interest will result in your money doubling every 72 years.  Invest at 2% and your money will double every 36 years.  This means you’ll have four times as much money after any given period of time investing at 2% instead of 1%.  Invest at 4% and you’ll have eight times as much money as you will investing at 1%.  Over long periods of time, the best place to be invested is in equities, meaning mutual fund that invest in stocks and the stocks themselves.  With stocks you are protected against inflation because the price of the shares will increase as prices of other things go up.  The companies just charge more money to account for increases in their costs.  Furthermore, the value of a basket of stocks will grow with time as the companies grow and sell more products.  When you invest in stocks, you put some of the best entrepreneurs and business men to work for you.   And that’s a good thing.

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

An Open Letter To Newsweek (and Time, and All Other 20th Century News Publications)


Dear Newsweek,

You may have noticed your subscriber base dropping off over the last fifteen years or so.  In fact, you’ve probably noticed this trend since the 1980’s, or at least the early 1990’s, but it has certainly accelerated during the last fifteen years or so, since the availability of news content on the Internet first became available.  You have no doubt also noted the rise of “citizen journalists,” and you have probably scoffed at them, given the level of hubris ever present in your industry.  Now that your readership has floundered, you are probably blaming the combination of these citizen journalists with their sharp-edged blogs and the unsophisticated public for the decline in your readership.  One of your former editors said as much in a recent Wall Street Journal  op-ed.

In fact, that writer blamed a drive in the traditional print publications to appear more like the blogs and news websites with flashy stories, rather than provide the traditional fare of carefully checked and balanced stories, for the recent article in Rolling Stone.  In that article an account of a brutal gang rape at a University of Virginia fraternity house was described, resulting in a suspension of all Greek life on campus  , only to have the story unravel, forcing the magazine to print a retraction.  In the op-ed, a need to get stories out fast that have “rough edges” was blamed for the printing of the story despite the fact that none of the individuals being accused of the rape or any representatives from the fraternity were ever interviewed.

I’ve also heard other excuses for the drop in readership, generally blaming the public.  People just aren’t reading anymore.  People want all of their news online, so no one picks up a magazine or a newspaper.  People don’t have a long enough attention span anymore to read a full article; they just want sound bites.  People don’t follow current events anymore.

I believe the issue is far more fundamental, and that it started well before internet news and blogs.  The issue is that you no longer produce a product that is of value to anyone.

The product you produce is information, and its value comes from the need for people to understand what’s going on around them in order to make good decisions.  People can’t travel to Iraq and see the reaction of the Iraqi populus to the arrival of American troops, so we need reporters from Newsweek there to give us an accurate picture.  We don’t have time to figure out the impact that the new EPA regulations will have on our power bills and even the availability of energy at all, so we need reporters from Time to talk to the experts on American energy production and accurately relay what they find.  Few people were in Ferguson, Missouri on the night that Michael Brown was shot, so we need US News to give all of the details as they emerge with proper fact checking.  The public can’t go into the White House and attend the President’s press briefings, so we need reporters from The New York Times there to ask tough questions and press for answers.

Your industry has fallen down miserably in your responsibility to gather and disseminate this information.  For too long you have allowed your political biases to direct your choice of what words you use, which information makes it into the first few paragraphs of your stories, and even which information makes it into your stories at all.  You state scientific hypotheses as facts as if you were stating that grass is green or the sky is blue, rather than stating them as unproven theories.  You have gone from being providers of the news and protectors of the public to being spin doctors and propagandists.

You have been losing readership all along as people have detected this level of bias in your stories.  The decline has only accelerated with the development of the internet, which has provided more people access to much of the information you have been hiding, making them realize the level of slant in your articles.  Why should they buy your publication and its distorted information when they can get a more complete picture from blogs and important documents themselves on the internet?

It doesn’t matter if your content is in print, online, or tattooed to your foreheads.  People only trade the money earned through their labor for things that are worth the value of that labor.  Articles filled with half-truths, half of the information, and blatant propaganda are not worth the trade.  If you want to revitalize your industry and regain your readership, you need to go back to what your founders sought to protect – the right of the people to get truthful, accurate, and unbiased information.  If your organizations do not possess that level of integrity, your products are utterly worthless, and I say, “Good riddance.”

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Want to Be a Millionaire? Manage Your Cash Flow


Growing wealthy is actually quite simple. While a high income can certainly help one become wealthy faster, most people with high incomes are still a paycheck away from missing their house payment. When a job is lost, suddenly people are digging into their 401k’s and IRAs – their only real savings – losing millions of dollars in retirement by raiding their tax deferred savings to meet expenses. The difference between a person who will become wealthy and the average person (the broke person) lies not in the income but in the cash flow – what each person does with his money.

Below is the cash flow diagram for the “normal” person – one who will never become rich. Income comes into the bank account in the form of a salary. This could be a very large salary or an average to small salary – it really doesn’t matter. The entire salary only pauses in the bank account, soon being doled out to various recurring expenses such as house payments, car payments, cable bills, cell phone bills, credit card payments, student loans, etc…. Often the money is spoken for before the month even starts. Individuals like this see millions of dollars pass through their hands during their working lifetime, yet retire with only a few thousand in savings.

In addition to the recurring expenses, interest is also being paid, meaning that more is being paid for things than face value. Often individuals will use credit cards to spend more than they make, run up the balance on those credit cards (at 15% interest or more), and then refinance that balance into their home loan, only to start the cycle again. That Big Mac is now paid for over 30 years.

Below is the cash flow diagram of someone who will become wealthy. Note two things. First of all, the expenses are less than the person’s income. He does not add payments to his life until every dollar is spoken for before the month begins. Second of all, the individual directs some of his money into the purchase of assets. Things such as stocks, real estate, or bonds. These things actually generate additional income for the person. Instead of paying interest, the person is receiving interest. This enables him/her to actually pay less for things, or at least work less for things. This is done by foregoing some of the stuff until later – living below one’s means.

As time goes on and the amount of assets grows, the income received from these assets will be larger than one’s salary. At that point the person is said to be “financially independent,” meaning that he could quit his job without affecting his lifestyle. One can then enjoy the higher income to buy nice cars, houses, and take nice vacations, and give more to churches, charities, and individuals since one’s income will be higher than that of one’s peers.

Most individual who become wealthy, however, will allow some of their additional income to go back into the purchase of more assets. This process is called “compounding.” The power of compounding is truly amazing, because while the increases seem small at first, it is astounding how large the sums can get if left alone to double every five to seven years.

In summary, if you wish to become wealthy: 1) Live below your means and delay purchases until you can buy them with cash, 2) Direct some of your income into assets – things which generate an income for you, and 3) Allow some of the income to compound. At that point you can live in security. You will also have the means to help others, rather than being one misfortune away from needing help yourself.

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How Much Do You Need To Save for Retirement?


OLYMPUS DIGITAL CAMERASaving for retirement seems like a daunting task.  It is a combination of preparing for something that is a long ways away and a seemingly insurmountable task.  Both of these aspects keep people from saving like they need to if they want to have a comfortable retirement because people in general focus on the near-term wants and needs and give up when a task seems too difficult.  So people put it off, rationalize by saying that they would rather “live for today” or that somehow they’ll be alright when the time comes, and the years tick by until people find themselves ready to leave a job or being laid off in their fifties without prospects for finding a comparable job, but not having the savings needed to see them through retirement.  People then, who have always been able to provide for themselves, end up scrimping by on Social Security and aid from kind people or burdening adult children who are finding themselves needing to continue to support their own adult children.  The senior discount should not be your retirement plan.

It does not need to be this way, however.  A good rule-of-thumb for how much you’ll need for retirement is to take 75% of your current spending and multiply by 25.  For example, if you have a $60,000 per year job, pay $10,000 per year in taxes and health insurance,leaving a take-home pay of $50,000, you would need to have  0.75*$50,000*25 = $937,500 in savings by the time you retire to have a good chance of continuing your current lifestyle without depleting your savings before you die.  I would advise you have double that amount saved since it reduces your chances of outliving your money further and allows you to continue to invest about two-thirds of your savings in stocks when you retire, thereby increasing your retirement income and allowing you to thrive in retirement rather than just get by.  While it may seem impossible to save up millions of dollars to take you through 20 years or more of retirement, it can be easily done with a combination of starting early, saving regularly, and using common stocks to increase your return.

For example, someone starting out at 20 years old who puts just $300 per month, or just $3600 per year, away into a 401k or personal IRA and invests it entirely in stocks (in a set of low-cost mutual funds that are well diversified) should expect to get a return of about 8% after inflation over a 45 year working career.  Plugging this information into a financial calculator starting today, one gets:

Age Contribution Interest Balance
20 $0.00 $0.00 $0.00
21 $3,600.00 $288.00 $3,888.00
22 $3,600.00 $599.04 $8,087.04
23 $3,600.00 $934.96 $12,622.00
24 $3,600.00 $1,297.76 $17,519.76
25 $3,600.00 $1,689.58 $22,809.34
26 $3,600.00 $2,112.75 $28,522.09
27 $3,600.00 $2,569.77 $34,691.86
28 $3,600.00 $3,063.35 $41,355.21
29 $3,600.00 $3,596.42 $48,551.63
30 $3,600.00 $4,172.13 $56,323.76
31 $3,600.00 $4,793.90 $64,717.66
32 $3,600.00 $5,465.41 $73,783.07
33 $3,600.00 $6,190.65 $83,573.72
34 $3,600.00 $6,973.90 $94,147.62
35 $3,600.00 $7,819.81 $105,567.43
36 $3,600.00 $8,733.39 $117,900.82
37 $3,600.00 $9,720.07 $131,220.89
38 $3,600.00 $10,785.67 $145,606.56
39 $3,600.00 $11,936.52 $161,143.08
40 $3,600.00 $13,179.45 $177,922.53
41 $3,600.00 $14,521.80 $196,044.33
42 $3,600.00 $15,971.55 $215,615.88
43 $3,600.00 $17,537.27 $236,753.15
44 $3,600.00 $19,228.25 $259,581.40
45 $3,600.00 $21,054.51 $284,235.91
46 $3,600.00 $23,026.87 $310,862.78
47 $3,600.00 $25,157.02 $339,619.80
48 $3,600.00 $27,457.58 $370,677.38
49 $3,600.00 $29,942.19 $404,219.57
50 $3,600.00 $32,625.57 $440,445.14
51 $3,600.00 $35,523.61 $479,568.75
52 $3,600.00 $38,653.50 $521,822.25
53 $3,600.00 $42,033.78 $567,456.03
54 $3,600.00 $45,684.48 $616,740.51
55 $3,600.00 $49,627.24 $669,967.75
56 $3,600.00 $53,885.42 $727,453.17
57 $3,600.00 $58,484.25 $789,537.42
58 $3,600.00 $63,450.99 $856,588.41
59 $3,600.00 $68,815.07 $929,003.48
60 $3,600.00 $74,608.28 $1,007,211.76
61 $3,600.00 $80,864.94 $1,091,676.70
62 $3,600.00 $87,622.14 $1,182,898.84
63 $3,600.00 $94,919.91 $1,281,418.75
64 $3,600.00 $102,801.50 $1,387,820.25
65 $3,600.00 $111,313.62 $1,502,733.87

So with only $300 per month invested without ever increasing contributions and without adding anything for a company match, our retiree will have about $1.5 M in savings when entering retirement.  Add a little more and include a company match, and you could easily have $3M or more if you start putting money away in your 401K or IRA right when you start working.  Note that the balances grow very slowly during the first few years, but then grow very rapidly near the end once your money starts to compound, making interest from interest.

This chart can also be used to evaluate how you are doing right now versus where you need to be.  Just find your age and compare the balance shown against what you currently have saved.  If you are 40 years old, you should have around $200,000 saved if you want to have around $1.5 M at retirement and provide a yearly income of about $60,000 for expenses.  If you are 55, you’d need to have about $700,000 saved to be on track.  If you have less than this, it is time to start ramping up your contributions to reach your goals.  Once you get on track, or maybe ahead of the game a bit, you can ramp things back down because you’ll know your retirement is secure.  Then again, it isn’t a bad idea to be substantially ahead of the game so that you can take less risk with your investments when you are approaching retirement.  Shifting from stocks into bonds and interest-paying securities will reduce your risk of a market meltdown when you are 64 affecting your retirement date, but you will not get the kind of returns projected in this table from interest alone.

If you know there is no way you can save as much as needed, you can also look at the chart to see how much longer you may need to work beyond 65.  If you currently have $100,000 saved, you have the retirement savings of a 35-year-old.  If you are currently 40, you can reach $1.5 M in savings by putting $300 per month away into mutual funds by the age of 70.   If that sounds like a non-starter for you, it is time to look at your spending priorities in your life and find ways to increase your retirement savings.  Everyone has excuses, but just because you have good excuses for not saving for retirement doesn’t mean you’ll be just fine if you don’t.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Some Big Winners and Big Losers in My Portfolio


I’ve had some spectacular winners and equally spectacular losers in my personal portfolio this year as we wrap up the final couple of weeks of 2014.  Among my big winners were restaurant stocks such as BJ’s Restaurants (BJRI) and Texas Roadhouse (TXRH).  Intel (INTC) and Norwegian Cruise Lines (NCLH) also did very well.  Finally, a long-term holding of mine, Home Depot, has done very well over the last few years, rising from the mid-thirties to almost $100 per share at this point.  My losers, including Oasis Petroleum (OAS), Enesco (ESV), and Greenbrier (GBX), have been weak mainly due to the recent weakness in the oil industry.

I’ve always liked restaurants stocks because they fit with my strategy of buying stock in companies that grow and expand.  It is easy to tell how much room for growth a restaurant has.  You just see where they are in the country or in the world.  If they are already on every corner, you know their growth prospects are limited and it is probably time to sell (unless you are just holding for steady income).  If they are only in about half of the country like BJ’s is (I’ve never actually been able to go to one of their restaurants because there are none around here), you know they have room to expand.  Likewise, while there are a lot of Texas Roadhouse Restaurants in some parts of the country, they aren’t everywhere.  Good restaurant stocks will see earnings grow years after year as they add restaurants and improve quality and service, such that more people go to existing restaurants.  You can look at the earnings growth rate to get an idea of the sort of return you can get since normally, over long periods of time, the stock price will roughly follow the earnings growth rate (as they will for any stocks).

I’d worried about buying Intel since it once was once the only real player in the processor market, but then AMD and others were able to move into that market successfully and take market share.  People are also moving away from computers into tablets and smartphones, which were not Intel’s original markets and it wasn’t clear if they would be able sucessfully enter these markets and have a place in this post-PC world.   There is always a danger of buying into a leader in a market that is vanishing – just ask those invested in buggy whip makers.  Value Line, a publication I use a lot in my stock picking, however, gave them good marks for Timeliness(TM) and earnings growth, so I went ahead and bought in.  They have done very well so far, up about 47% since I bought them about a year ago, so they are obviously becoming a player in the new mobile computing world.  Sometimes a great new growth stock is an old household name that just reinvent itself.

Norwegian Cruise Lines is a newer addition that I bought also as a Value Line recommendation.  They have been on fire over the last few months and my position is up over 25% in less than a year.  It appears that people are having some more money to spend since things like cruise lines, hotels, and restaurants are doing well.  I look at the long-term, however, and plan to hold on through future good and bad economies so long as the fundamentals of the companies remain the same and they have prospects to grow.  With a cruise line, that means adding more ships and more ports and cruises.  Norwegian is doing just this and looks like they can become a bigger entity in the cruise ship market.  Perhaps the large number of people currently retiring will also be a new source of revenue.  It is always been a good idea to buy what the babby Boomers are needing.

Oil has not been kind to me, but that is really my fault.  I still have a profit on Greenbrier, which makes rail cars and has benefitted greatly by the oil boom since one of their main products is tanker cars.  I actually still have a small profit there since I bought back before the big move up was completed, but that profit has declined mightily as the stock has fallen from near $80 per share to near $50.  Enesco rents deep water oil drilling rigs.  I have about a 45% loss on that position, reminding me of the losses I took the last time I invested in drilling rigs with Diamond Offshore.  That was right before Transocean and BP put a big hole in the bottom of the ocean and caused an oil leak that lasted for months, devastating the gulf coats tourist industry for a period.  Oasis petroleum, a more direct oil producer, has also done poorly, dropping to the point where I thought they couldn’t drop anyore when they were in the high $20’s, and then falling into the mid-teens last week.  That is why trying to buy a stock on the decline, called “catching a falling knife,” is so difficult.  Things go a lot lower than you think they will.  That position is down about 70% for me since I bought whent hey qwere up in the $50’s.

With all of my losers, I think I’ll probably stay invested after reevaluating the fundamentals of the companies.  There is no reason to sell just because a stock has declined in price – that’s closing the barn door after the horses have been stolen.  I also think that on a long-term basis oil will do well since there is no way to replace it for making plastics and a lot of other important products, not to mention it being the only available compact source of energy that can be easily used in passenger cars and trucks.  Plugging in may seem nice when you commute 10 miles to work and back each day and are then able to plug ion again, but there is nothing like gasoline or diesel when you need to drive all day or are travelling to a remote area where you can’t find a wall outlet.  (Note also that you actually use more energy per mile driven using an electric car than a gas car if you include all of the losses in making the electricity, transporting it to your house, and getting it into the car battery.)  The lesson here, however, is to be careful of buying into an industry after they have already had a few years of great growth.  Every industry gets overbought and needs to contract as some point even if long-term there is ample room for growth.  I’m not a fan of market timing, but still there are times when things are really overbought or oversold where you should just stay on the sidelines for a while and wait for a better entry point.  This was one of those times.

Overall it has been a good year because my winning stock have far outpaced my losing stocks.  That is the beauty of investing in individual stocks – your gains are limitless, while your losses are limited to 100%, so a couple of big winners can make up for several big losers.  It takes time, however, for really big gains (e.g., gains of 1000% or more) to be made.  I’ve held Home Depot stock for over 20 years, including during a period when the stock went nowhere for more than a decade.  I bought in at various points between $40 and $30 per share, so I’ve now made about a 250% gain.  Over 20 years, that is an annualized return of about 10%, but most of that gain came in the last few years.  This is why long-term investing is more effective than moving in and out stocks – you reduce your risk by allowing a long time for things to happen.  It is easier to spot companies that will do well over a long period of time than find stocks whose price will increase over a short period of time.  You can judge the long-term prospects by looking at the fundamentals of the business, while the short-term price movements are due to all sorts of seemingly random factors.  Investing is long-term.  Gambling is short-term.
Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.