Tarkblog

Since Dooley requested some of my insight into my investments and how I do things, I thought I would share with everyone else out there in inter-world-net-tube-web-land. This is simply my advice and strategy: your mileage may vary.

My first absolute bare minimum first three rules of investing are:

1) If your company offers some kind of retirement plan and kicks in a contribution on your behalf based on what you kick in, you need to contribute as much as you can. If they match dollar for dollar up to a certain amount, you need to put every dollar in you can to get the match. Simply put, you are earning a 100% return on your money at this point. I think this one is hounded in the ground enough to be obvious, but a lot of people overlook it.

2) Do NOT buy a stock if you don’t know anything about the company. Every magazine, newspaper, and internet site that has anything to do with investing will always have some information about various stocks and picks and ideas for you. They’ll show pretty charts and graphs and say “XXXX is a good stock to buy for 2007″. Unless you are already familiar with the company, do NOT buy it.

3) Do NOT buy an hold. I picked this one up from Jim Cramer. If you buy a stock, you should track it. Daily tracking is hard, I know. But at least every few days, to go google finance and look at the stock. How has it done the past few days? What are the latest news reports? What are you thoughts on the company right then and there? Do you like what they do or where they are taking their business? If you can’t answer those questions, you shouldn’t be in a stock. It’s like handing money to your seven year old cousin you see 3 times a year and telling her to invest it for you. You have no idea what’s going on with that money. What good is that?

“But Caleb, I don’t have time to follow and research stocks”

No problem, a lot of other people don’t either. Put your money in a mutual fund. Someone else will manage your money for you. You may not make as much money as if you had done it yourself (or, hopefully, you’ll make MORE), but at least someone will be watching over your investments for you and making the calls.

If you want a little better return and have a good idea about a certain sector you’d like to follow, then put your money in an exchange traded fund (ETF). You basically track stocks directly and without as much overhead as a mutual fund. The downside is that your money isn’t being managed per se, it’s just spread out over a bunch of stocks in a sector. So you still need to keep up with it, albiet perhaps not as frequently as watching the stock itself.

So next you need to pick investments. Ahh, the tricky part. I’ll offer a lot of options for your over the new few blog entries that I’ve used in the past to get your appetite wet. I’m not advocating buying any of these particular investments, just showing you how I make my picks so as to help you better make your own:

Let’s look at two of my favorite ETFs right now: VWO and VIG.

VWO is “Vanguard Emerging Markets”. I don’t remember where I came to know this particular ETF, but I know since I bought in I’ve seen it advertised a TON. Here’s a short description of VWO:

The Vanguard Emerging Markets ETF (AMEX: VWO) focuses its investing on companies located in developing countries around the world, including Brazil, China, India, Russia, South Korea, and Taiwan. These countries offer higher levels of current and potential growth than do the markets of more developed countries such as England, France, Germany, and Japan.

Now, think about what you’ve heard about growth over the past couple of years. Where is it all at? Certainly, the US is growing, but India, China, Russia - these countries are all growing much more rapidly. It seemed pretty logical to me that investing in foreign, emerging growth these past few years was a good bet.

I bought 50 shares of VWO in 11/05 at $57.26 a share for a cost of $2,870.00 (including the broker commission). In January it paid out $53.85 in dividends; about 1.8%. Not too bad for only having the stock for a few weeks.

It crept up. Now, I wasn’t actively following the individual stocks on a day to day basis. I didn’t pay attention to the share price every day or know if it was up or down. But all last year I kept hearing stories about growth in these countries and I felt like it was still a good investment. The share price seemed to trend up, so I was happy with it.

Late last year I ended up getting out of VWO. I sold half of the shares at 68 and the other half a few months later at 76.83. My overall gain in VWO was $736.63, or a return of 25% in about a year’s time. Not too shabby.

Why did I get out of VWO? I still think the emerging markets are a good bet for now. But I wanted to move into something else and I needed to free up some money to do so, and VWO was the one that took the hit. I wasn’t unhappy selling it at a 25% gain, even though it may have gone up more.

Now, for VIG, which is VANGUARD’s Dividend ETF. The short description is:

Vanguard Dividend Appreciation ETF (the Fund), formerly known as Vanguard Dividend Appreciation VIPERs, seeks to track the performance of an index that measures the investment return of common stocks of companies that have a record of increasing dividends over time

I really like dividend bearing stocks. One of the objectives of publicly traded companies is to make money for their shareholders. A lot of companies roll that money directly back to their shareholders as dividends, which is NICE. Other companies don’t, opting to keep the money to reinvest and hopefully further drive up the value.

Here’s why I like dividends: they are reinforcements to you that the company has your interest at stake. I think a lot of CEOs and upper management are quite on top of making sure the stock price and value goes up. If they weren’t they wouldn’t stay in position as CEO very long. But there’s no doubt in my mind that CEOs and boards and upper level management are all overpaid. Bob Nardelli, outgoing CEO of Home Depot, got a $220 million severance package. That’s a bit excessive, don’t you think?

If the company has the money to pay its CEO that much money, it has the money to spread some of its profits back out to its shareholders. Dividends let me know they’ve got at stake in my interest as well.

I think giving money back to the shareholders as you make it is a good practice. Hell, I can simply reinvest it right back in the company if I so desire. In short, I think dividends are GOOD THING.

So, I like this ETF. It pays dividends, obviously.

I bought 65 shares of VIG on 10/06 for $52.37 a share. I still have then, and they’re currently at $54.65. I’ve also made $16 in dividends thus far. My current gain on VIG is $137.95, or about 4%. Not too bad for just a few months of investment.

I’ve had some losers too. I’ll talk about them next time.

This entry was posted on Thursday, January 18th, 2007 at 2:02 pm and is filed under Random Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.