***Official*** 2011 Stock Market Thread

[lothar]

Care to explain why you think this?

Diversification is nothing but a protection against ignorance.

 

[IHateMyJob2004]

Diversification is nothing but a protection against ignorance.

Diversifictaion is not protection against ignorance. It is a sign that you don't know what you are doing. For the right price I would but every penny I own into JNJ, PG, WFC or BRK.

If you are not confident to put 100% of your money into a company, why should you be confident if it is only 5%?

 

[Imp]

Damn. At my "other" job today, no internet access (ok, there was, no but no time and I didn't ask for password). Not such an exciting day, but still interesting. Saw the -400 around 10am and added a bit more today. Going slowly and planning on holding things long.

Love the slow rise throughout the day, then the inevitable 2pm steady sell off. So, 5% pop tomorrow?

 

[Scarpozzi]

I dropped over $1000 on UMDD today. I've been watching the fund that tries to do 300% of the daily performance of the S&P Midcap 400 Index. I'm making the assumption that despite the losses we saw today of the gains yesterday afternoon that the majority of the bleeding has been stopped.

UMDD closed at $54 yesterday....closed at 48 today, but dropped in premarket trading to 50, so it actually remained relatively stable. In the recent months, it's been anywhere from $70-110 and where most companies are. This might be a good ETF to pick up if you're interested in a 6-8 month return and want to hedge bets by spreading the risk across the S&P as a whole since it's been down as a whole. Anything under $50 is a steal for this ETF.

 

[Imp]

XOM trading below P/E = 10. Down from $85+ (IIRC) high, albeit at height of "gas crisis" earlier half of this year.

 

[IHateMyJob2004]

Alot of stocks are hitting 52 week lows. Anything grossly undervalued?

I now find myself seeing DIS as an opportunity. I am loaded up on USG. Unless it hits $5, I am done with it. WFC is down to about $23.

Tons of opportunity. Trying to find a potential 200% gainer.

 

[the DRIZZLE]

That is stock dependant. For USG I will usually assume no growth for a few years. Ramp up at maybe 2-3% for a few years then have a jump to a new all time high at maybe year 5. I manually assign growth for the first 10 years then assume growth of 3 or 4% for years 10-20.

For soemthing like JNJ, I would assume growth at mybe 7 or 8% for 5 years then 5 or 6% for years 6-10 and 4% for years 10-20.

I then discount all those projected free cash flows to today's dollars. Typically discounting at 9% or greater. I usually check 9 and 11% but sometimes look at 13 and 15% discount rates.

I think 7% is a little optimistic for JNJ. If you look closely at a most big companies earnings over the past few years all the earnings growth is from cutting costs. There is almost no top line growth. You can't grow year over year just by cutting costs. US GDP is still below 2007 levels in real terms. (although usually DCFs are done in nominal terms)

 

[the DRIZZLE]

Diversifictaion is not protection against ignorance. It is a sign that you don't know what you are doing. For the right price I would but every penny I own into JNJ, PG, WFC or BRK.

If you are not confident to put 100% of your money into a company, why should you be confident if it is only 5%?

Not exactly true. There are certain types of risks that are impossible to predict. Diversification protects you against those. You give up a small amount of return in exchange for a large reduction in risk. I guarantee you Warren Buffet wouldn't advocate putting all your money in one stock as a strategy.

IMO the best strategy for a small value investor is to have 20 to 30 positions. It's just hard to follow that many companies and industries when you are doing it on your own and have a full time job. I know a guy who basically has a hedge fund with 4 or 5 other guys. They have only their own money in it. It just helps to divide up the research hours.

 

[JMapleton]

Diversified investing is almost as foolish as excessive speculation.

"Diversification is a hedge against ignorance."
--Buffett

If you do not understand investing completely, diversification is not a bad thing. If you have a clear and defined objective and ideal about where you think you should put your money, diversification is a terrible idea. It depends on the investor.

I personally am investing 100% in one single sector, in two stocks and I feel 100% safe. In fact I'm probably in a safer bet than 99% of all investors, yet my approach isn't for everyone. You have you understand that not everyone knows what they are doing.

 

[the DRIZZLE]

"Diversification is a hedge against ignorance."
--Buffett

If you do not understand investing completely, diversification is not a bad thing. If you have a clear and defined objective and ideal about where you think you should put your money, diversification is a terrible idea. It depends on the investor.

I personally am investing 100% in one single sector, in two stocks and I feel 100% safe. In fact I'm probably in a safer bet than 99% of all investors, yet my approach isn't for everyone. You have you understand that not everyone knows what they are doing.

It sounds like you don't understand math well enough to be investing. There is a huge difference between broad diversification like buying a mutual fund, and buying enough securities to reduce company specific risk. That's why there's no hedge fund on the planet that would own a portfolio of two securities. You must be smarter than them though.

 

[IHateMyJob2004]

Not exactly true. There are certain types of risks that are impossible to predict. Diversification protects you against those. You give up a small amount of return in exchange for a large reduction in risk. I guarantee you Warren Buffet wouldn't advocate putting all your money in one stock as a strategy.

IMO the best strategy for a small value investor is to have 20 to 30 positions. It's just hard to follow that many companies and industries when you are doing it on your own and have a full time job. I know a guy who basically has a hedge fund with 4 or 5 other guys. They have only their own money in it. It just helps to divide up the research hours.

Actually, Buffett would tell most investors to just use an index fund. However if you are hand picking stocks, you should only buy if you are willing to put 100% of your money in any stock you buy. Not that you do. He has said this and gone so far as to say that he would be willing to own 100% of WFC and nothing else. The whole point is that if you are truely doing your due diligence, you should be able to confidently put 100% of your money in one stock.

Small investors shoudl have 20 to 30 stocks simply because no one should tell them other wise. 20 to 30 is pretty much the standard broker type talk. 5 is sufficient in reality if you are doing your research correctly. I have about 8 or 9 right now.

 

[IHateMyJob2004]

It sounds like you don't understand math well enough to be investing. There is a huge difference between broad diversification like buying a mutual fund, and buying enough securities to reduce company specific risk. That's why there's no hedge fund on the planet that would own a portfolio of two securities. You must be smarter than them though.

Many are concerntrated. I can think of one that has only 7 stocks. Granted they do not have to report everything they own (private companies, etc).

 

[SP33Demon]

Actually, Buffett would tell most investors to just use an index fund. However if you are hand picking stocks, you should only buy if you are willing to put 100% of your money in any stock you buy. Not that you do. He has said this and gone so far as to say that he would be willing to own 100% of WFC and nothing else. The whole point is that if you are truely doing your due diligence, you should be able to confidently put 100% of your money in one stock.

Small investors shoudl have 20 to 30 stocks simply because no one should tell them other wise. 20 to 30 is pretty much the standard broker type talk. 5 is sufficient in reality if you are doing your research correctly. I have about 8 or 9 right now.

What's so great about WFC?
http://finance.yahoo.com/echarts?s=WFC+Interactive#symbol=WFC;range=5y

You'd be down 28% if you put money into this stock 5 years ago.

 

[IHateMyJob2004]

What's so great about WFC?
http://finance.yahoo.com/echarts?s=WFC+Interactive#symbol=WFC;range=5y

You'd be down 28% if you put money into this stock 5 years ago.

If the first thing you look at is a stock chart, I can not even begin to explain it. It really is this simple.

Start with the basics:
1) Price is what you pay. Value is what you get.

 

[IHateMyJob2004]

nosce te ipsum

 

[SP33Demon]

If the first thing you look at is a stock chart, I can not even begin to explain it. It really is this simple.

Start with the basics:
1) Price is what you pay. Value is what you get.

Can you translate to layman's? I buy WFC 5 years ago at 40. It's never passed 40 since then. Why is this such a good stock again? I have lost 28% since then. If this is true, why the hell would you "put all your money into this one stock"? Please enlighten us. Especially why a stock like this is greater for short term investing in a recession vs gold. Here's your chance, sell on me on why I should put all my money into this stock.

Since 2000 it's only up 100%. Whoopdefcking do. Gold (UXG) since 2000 is up 600% due to the recession. A smart investor would invest in both in deflationary times.

 

[Imp]

Can you translate to layman's? I buy WFC 5 years ago at 40. It's never passed 40 since then. Why is this such a good stock again? I have lost 28% since then. If this is true, why the hell would you "put all your money into this one stock"? Please enlighten us. Especially why a stock like this is greater for short term investing in a recession vs gold. Here's your chance, sell on me on why I should put all my money into this stock.

Since 2000 it's only up 100%. Whoopdefcking do. Gold since 2000 is 600% due to the recession.

I don't know what "hatemyjob" was thinking, but $40 was pre-housing crash/recession. The bank probably flirted with bankruptcy, and now appears to have stabilized significantly more than before. It's stock price crashed accordingly, and is now worth less than it "should" be. So... I would buy too, but I'm too busy with C and JPM.

 

[SP33Demon]

I don't know what "hatemyjob" was thinking, but $40 was pre-housing crash/recession. The bank probably flirted with bankruptcy, and now appears to have stabilized significantly more than before. It's stock price crashed accordingly, and is now worth less than it "should" be. So... I would buy too, but I'm too busy with C and JPM.

Yep, it took a major hit and corrected. While still not a bad stock, I'm not going to "put all my money into it". You'd be a fool to not put a position in gold/silver right now. This economy isn't going to be coming out of this recession anytime soon.

 

[a123456]

Geez, the market is crazy this week with all the volatility.

Buffett is slightly special case. Since he has a huge interest, if not whole, in any company he buys, he can get some insider information and affect some of the decisions in the company if he wants, such as choosing new management. A regular investor isn't going to have the same pull without a whole lot more effort.

I don't know about WFC in particular, but if you owned the whole thing it wouldn't be a bad investment. The cash flow seems pretty nice if you just pay a "dividend" to yourself and they made a ton of money on the Wachovia deal. Buffett's into cash flow in general with all his insurance holdings so this type of company makes sense for his portfolio.

 

[Imp]

Yep, it took a major hit and corrected. While still not a bad stock, I'm not going to "put all my money into it". You'd be a fool to not put a position in gold/silver right now. This economy isn't going to be coming out of this recession anytime soon.

I know nothing about WFC aside from the fact that it shows up in articles I read about BAC, JPM and C. It's apparently the biggest or second-biggest retail bank in the US of A... I'd love to throw all my money in banks right now, but risk is a tad too high. There's a potential upside of 50+% for some of them.

I would be willing to throw it all into oil right now. In fact, 1/3 of my portfolio is oil, hoping for another drop to pump more in. Don't really expect a world of addicts to go through withdrawal any time soon.

 

[Imp]

+423 points today...

So, are we looking at -500 tomorrow again? Or is it just when a pattern starts emerging that there's a break out (either way)...

 

[dullard]

Can you translate to layman's? I buy WFC 5 years ago at 40. It's never passed 40 since then. Why is this such a good stock again? I have lost 28% since then. If this is true, why the hell would you "put all your money into this one stock"? Please enlighten us. Especially why a stock like this is greater for short term investing in a recession vs gold. Here's your chance, sell on me on why I should put all my money into this stock.

Since 2000 it's only up 100%. Whoopdefcking do. Gold (UXG) since 2000 is up 600% due to the recession. A smart investor would invest in both in deflationary times.

Your "logic" is far from logical. You are using emotion and leaving out facts.

1) WFC has paid significant dividends in the last 5 years. About $4/share. So in 5 years it went from $35.14 to $24.29 + $4 in dividends. Net loss: 19.5% not the 28% you are incorrectly stating.

2) Buying low is a good value. You don't want to buy a stock once it is at its peak, you wait until price drops. That is the biggest reason to stear clear of most metals now. You already missed the boat.

3) You are cherry picking numbers, 5 years ago WFC was about its all time high. So you tout a loss since its peak. Well lets try more than just your cherry picked time frame. If you bought 10 years back you'd be up 5.6% plus dividends which would be quite a nice gain when the stock market has been essentially flat. If you bought 15 years back, you'd be up 158% plus dividends. If you bought 20 years back, you'd be up 510% plus dividends. If you bought 25 years back, you'd be up 1437% plus dividends.

4) Lets try that with gold. 10 years back: up 483%, 15 years back: up 338%, 20 years back: up 367%, 25 years back: up 289% (which isn't that much better than inflation). No dividends.

Gold only wins when you look at the recent rise (which will most likely eventually fall). Gold lost all longer term comparisons even if you don't count dividends.

Now time for my cherry picked data: If you followed IHateMyJob's advice this morning, you'd be up 6.16%. With gold, you'd be down quite a bit.

 

[IHateMyJob2004]

Can you translate to layman's? I buy WFC 5 years ago at 40. It's never passed 40 since then. Why is this such a good stock again? I have lost 28% since then. If this is true, why the hell would you "put all your money into this one stock"? Please enlighten us. Especially why a stock like this is greater for short term investing in a recession vs gold. Here's your chance, sell on me on why I should put all my money into this stock.

Since 2000 it's only up 100%. Whoopdefcking do. Gold (UXG) since 2000 is up 600% due to the recession. A smart investor would invest in both in deflationary times.

Why? Because WFC will be around 100 years from now unless something changes in the way WFC does business. Why the hell would I? Because I wouldn't pay $40 5 years ago. But I would pay $24 today. Or $14 2-3 years ago.

When you buy a stock, you are buying a piece of the future free cash flow that the underlying company generates. You estimate those future free cash flows and discount to today's dollars. Then you know the value of that business. And price follows value. It is this simple. This one paragraph. People understand this simple concept in 5 minutes or they never will.

Know thyself... read the link I posted in the thread just above your post.

Notice I did not use that "G" word. "G"old has nothing to do with the future of WFC. If you want to play that game, I'm sure I could point out that Pier 1 has destroyed almost anything else out there since early 2009.

Why WFC? Because I do not speculate. I invest.

 

[IHateMyJob2004]

I think 7% is a little optimistic for JNJ. If you look closely at a most big companies earnings over the past few years all the earnings growth is from cutting costs. There is almost no top line growth. You can't grow year over year just by cutting costs. US GDP is still below 2007 levels in real terms. (although usually DCFs are done in nominal terms)

JNJ will grow. I am confident in that. 7% is sufficient. 6%, 7%. It does not matter. It should get the inflationary growth along with some organic growth. JNJs interests are wtih the shareholders and the board is good. That is what is required to get growth beyond inflation. It does not provide a sufficient margin of safety right now though. Maybe in the low $50s I'd be a buyer.

 

[IHateMyJob2004]

I don't know what "hatemyjob" was thinking, but $40 was pre-housing crash/recession. The bank probably flirted with bankruptcy, and now appears to have stabilized significantly more than before. It's stock price crashed accordingly, and is now worth less than it "should" be. So... I would buy too, but I'm too busy with C and JPM.

Of all large banks, WFC was far from bankruptcy. Buffett has gone as far as to say that if companies started going bankrupt in the US, that WFC would have been one of the last if not the last to go bankrupt. This includes JNJ, PG, BAC, you name it.

As for the stock price crashing. You do know about the rising tide thing right? You had people panicking (reminder: Know Thyself link above), pulling money out of funds left and right. Everything fell. There was no rational between good and bad companies at that point. It was pure liquidation.

As for the recent +/- 5% swings, who knows why this is happening. 1) Is it knowable? 2)Is it important?
(1) not really (2) no