Sometimes, I just want to bang my head against a wall......

[RACastanet]

You really should watch Randy Cost every morning, Rich. (Business news on Channel 12) Randy says buy what you know.

I have always said only buy what you understand.

Buy a blue chip stock you believe in

Never buy anything you cannot understand.

If you understand and like a stock, such as Pepsico, that is a good choice.

If you really know and understand this sector go for it,

Regarding Cost, I do watch him but do not care much for him and much of his advice.

Your investment has done very well. But, one robin does not make it springtime (I did see one this morning as I was scraping the ice off of the windshield). But, I would still be very cautious with the health care sector, especially the pharmas. The government cannot resist meddling and if the Dems get into the Whitehouse again someday, and they eventially will, they will reflexively meddle with health care. History does not seem to matter much with the pols.

By the way, my first shares of GE stock have grown over 4,000% and that is not including dividends!

Rich

Rich

[Bill Glasheen]

I'm not talking pharma, Rich. When I say healthcare, everyone thinks pharma. That part has done well, but it's a small part of the bigger pie.

Government will meddle. Trial attorneys will sue (where they can, which isn't in every sector of the industry, BTW). But none of that will happen if the profits aren't there in the first place.

As for GE, you're talking about a much longer period of time. I tracked the one stock I mentioned vs. yours on yahoo finace just now. Going back as far as both go, yours actually had a loss. And I've already mentioned what mine did.

http://finance.yahoo.com/q/bc?s=WLP&t=5 ... m&q=l&c=GE

But that's the point.

It's THE LONG RUN where it matters. Invest, and then leave it the hell alone. And if you don't trust individual stocks, buy a good mutual fund.

- Bill

[mjanson]

buy real estate !!!

[RACastanet]

yours actually had a loss

In that short time frame it did. GE is still being penalized because of the Enron, Worldcom, Tyco effect. You can toss HealthSouth into that mix.

But, include dividends, which you should in a complete evaluation, and GE is up somewhat in that four year period... 38% in fact! That is tolerable.

Hmmm... What is Wellpoint paying out in dividends? Darn, no dividend.

Back in my full employment days when I invested 10% of my income annually there was an interesting effect that began in the mid 1990s... my reinvested dividends were buying more stock than my 10+% was. That is the multiplying power of dividends and time. Add compounding and away we go!

The nice thing for me now is that the price of GE stock is essentially irrelevant to me. In fact, lower is good. With double digit dividend growth my income grows much faster than inflation. And the surplus gets plowed back into more and more GE stock as the price is a very reasonable P/E ratio in the low 20s.

The price of the stock is only a part of the picture.

Rich

[Bill Glasheen]

All true, Rich.

As for P/E ratios (lower is good, folks), WPL = 19.63, and GE = 21.26. And as you said, reinvesting dividends still leaves GE well behind.

But the point is still made here. Even a GE without Jack Welch is a good investment - OVER THE LONG RUN. We can't get into pissing contests over the short-run picture when it's DECADES of investing (and leaving it alone so no short-term capital gains taxes) that makes the difference. It's the compounding of money that makes you rich, and not the yearly returns.

That's a concept that escapes most people.

And it's the compounding of interest on borrowed money that kills you. It's worth taking a look at the price of a home, and then the REAL price when you add in all the interest over time. Oh my god... And it's even worse for those cars bought on loan, and especially those credit cards.

And this is why Gene's STILL banging his head against the wall. Someone please get the poor boy an ice pack!

- Bill

[MikeK]

That's a concept that escapes most people.

Like my wife and me.

We actually have both, stocks we hold that give dividends and ones that get bought and sold. The profits from the turn arounds get plowed back into other stocks.

We're also paying off our house early by paying twice monthly and paying extra. The half twice monthly is pretty neat in that it doesn't cost you more but it brings down the interest you're paying.

[benzocaine]

Does anyone here just invest in mutual funds?

One of the funds my 403 B utilized was fidelity low price stock funds. That one has had about a 15% rate of return every quarter. I love it.

[RACastanet]

As for P/E ratios (lower is good, folks),

Be careful here. That is too broad a statement. P/E ratios must be taken in the context of their industry.

Old smokestack companies involved in commodity production, US Steel for instance, will generally have a low P/E ratio. USX is in fact about 6. USX is a good producer and a healthy company in a market that happerns to be doing very well right now. However, I would not recommend betting your retirement on that company. Steel prices could fall 50% if there is a recession.

In high tech, Yahoo's ratio is over 27. In their business that is considered acceptable. GOOGLE's is currently over 87! There are some that believe 90+ is ok in their business but I would be hearing alarm bells and cashing out. A P/E of 87 is reminiscent of the days before the 2000 datacom/telecom crash. A year ago it was less than half that ratio and can go there very quickly on a whim.

Alcoa is a commodity producer - aluminum - but does not fall under the same metals category as US Steel. Alcoa adds value to its product by producing popular and somewhat recession resistant products such as food wraps (Reynolds Wrap). A pound of value added aluminum sells for roughly twice the price as the raw material. Hence, an old smoke stack company has transformed itself into a consumer products company and has a reasonable P/E ratio of 21. That puts them in the same class as consumer giant P&G! And both pay a dividend.

For my money I would go with P&G over all of the above.

When using P/E ratios as an indicator of investment quality please research others in its class before deciding the best course of action. Without that info the P/E ratio is meaningless.

Rich

[RACastanet]

Does anyone here just invest in mutual funds?

I have some for diversity. You need to watch the fees though. Plus there are tax consequences when the fund holder makes any moves.

Rich

[Bill Glasheen]

Earnings, earnings, earnings. I don't invest in vapor. Speculating where there is no earnings isn't the way to make money in the long run. I'll put my dad's lifetime success up against the day traders any day of the week. But of course he's a professional...

Ask all the folks who invested in dotcoms how they feel about their "investments" now.

A P/E ratio is a good start. You're just being argumentative, Rich.

Point well taken about comparing within industries...

- Bill

[RACastanet]

A P/E ratio is a good start . You're just being argumentative, Rich.

No, I am not being argumentative. You original statement was way too broad and it needed to be clarified.

As for P/E ratios (lower is good, folks),

A low or high P/E does not necessarily mean anything unless viewed in the context of its industry. In high tech a higher P/E ratio is tolerated. In old tech, low is the norm.

GE is at 21, and based on the company fundmentals of cash flow, debt, earnings history etc it should command a higher premium. Maybe 25 to 30! But, because it is lumped in the industry segment called 'conglomerates' it looks high to the casual marketplace and is therefore punished for being a conglomerate. This is a case of a company that would be worth more if broken up into its fundamental pieces. But that would be foolish as it acquires its financial strength by being a well run beheamoth.

Profits are very important but profits trends over time is really what you need to look at. A tired company could sell of its profitable pieces to boost the books before a merger or sale. That is what the venerable old Westinghouse Electric company did for several years before it disappeared as an entity. What is left of it is now CBS. The W name lives on in the profitable turine/generation business it sold off to a Euro firm.

Rich

[Bill Glasheen]

Case in point...

Google is the present darling of speculators. Its P/E ratio is in the stratospheric 80s to 90s. And what did it do today? With their quarterly announcement of earnings being lower than "expected" (what a surprise...) its value dropped almost 10% in a matter of hours.

But there will be takers with this "buying opportunity." Be my guest!

- Bill

[gmattson]

"Right on!" about Real Estate.

I was in St Petes all day yesterday on business (Check out http://festivalsofspeed.com) and one of my buddies, who is a judge at the Festival, pointed at a penthouse in one of the high rises overlooking the Bay and told me that 10 years ago he purchased one of the penthouses for $500,000 and last year sold it for $3.5 mil!

Hows that for a "dividend"!

I'd guess that Real Estate during the past 10 years has made more millionaires than any other industry.

Any comments from the "conservatives"?

[Bill Glasheen]

It's called sector rotation, George. The market was cooling for a bit, and interest rates were at record low levels. The best game in town for the speculators was real estate.

When the market starts to boom again and/or interest rates rise enough, the speculators will jump out of real estate. Then the real estate bubble will burst, but not quite as badly as the dotcom bubble.

Most of us homeowners have benefitted. Sort of... My property taxes are starting to bug the crap out of me. I KNOW my home didn't go up THAT much.

But the county is laughing all the way to the bank.

- Bill

[-Metablade-]

I live in California.
Unless you are a filthy rich, a movie star (Or just like filthy movies) the answer to for the average Joe to make some $$ is real estate is pretty much...

Nope.

Personally,
I do Mutual Funds, CDs, Savings Bonds and T-bills.