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Know what you own.

April 16, 2021

Three quick tips for investing success:

Investing on the surface seems easy, buy low and sell high.  The problem is emotions get involved.  The huge success in the stock market over the last year, the last decade, or heck the last hundred years wasn’t always a smooth ride.  Last year, at the end of February the stock market had one of the biggest and quickest drops in history.  As one point, many investors were in a state of panic.  But now we know one year later, making a major change in the portfolio would have been a painful lesson.

Here are three pointers to help you become a better investor:

#1.  It is common for the stock market to drop in price.  According to Motley Fool since 1915:

  • 89 times stocks feel at least 10%. Once every 11 months, on average
  • 21 times stocks fell at least 20% – once every four years, on average
  • 9 times stocks fell at least 30% – once every decade, on average
  • 3 times stocks fell at least 50% – a handful of times in your lifetime

Yet, the stock market is still up 2,000 fold since 1915!

Let’s look at some examples of some big name stocks and we can see it wasn’t always a smooth ride:

#2.  Don’t be impatient.  It is often very unprofitable to focus too much on the short term.

In my opinion investors who check their account balances on a daily basis tend to become more short term focused, which can lead to an increase in emotional investing mistakes.  Think like a business owner, as a business owner, I don’t check my bank balance on a daily basis.  Instead, I review a quarterly profit and loss report, which also includes a yearly total, and a comparison over the previous year.  These trends allow me to identify areas that might be concerns, adjust spending if needed, and or show me where we are having excellent growth.

#3.  This one is my favorite; investors should understand what they own.  To many people focus on what the stock is doing, not what the business is doing.  Think like a business owner.  Here are a couple examples of some of the stocks that stood out in the first quarter of 2021 in our models here are Retirement Guys Formula.

Lets look at the example of Newell which is in our Daily Essentials portfolio:

Newell is a global company with its headquarters in Atlanta, Georgia.  They specialize in household and personal products.  Their name may not ring a bell, but I bet you run across their products like sharpie markers and Rubbermaid storage containers daily.  Here is a quick video that shows what they have been up to since Covid last year.

https://www.youtube.com/watch?v=3bpSOKqVqYA&ab_channel=NewellBrands

When we review companies like this, one resource we use is Morningstar.  Here is a link to Newell on Morningstar:

https://www.morningstar.com/stocks/xnas/nwl/quote.  This allows us to roll our sleeves up and get a much better understanding of the company and its operations.

Next, let’s look at an example of Applied Materials which is in our Capital Leaders portfolio:

Applied Materials is a semiconductor manufacturer with headquarters in California.  Take a look at this video and you can see how amazing their technology is:  https://www.youtube.com/watch?v=5UJJ_OAwaFk&ab_channel=AppliedMaterials

Using Morningstar, we can review their financials and what we like is their strong return on equity, great revenue, and large balance sheet.  https://www.morningstar.com/stocks/xnas/amat/financials

In our last example, we review Synaptics Inc which is a holding in our Capital Growth SM portfolio.

Synaptics Inc is a world leader in human interface technology.  Here is a quick video on what they do:  https://www.youtube.com/watch?v=frkkr15zyXw&ab_channel=Synaptics

If we analyze their financial on Morningstar, you will notice they also have over 300 million dollars in cash, less then 30% in long term debt, and greater than 15% return on equity.  https://www.morningstar.com/stocks/xnas/syna/financials

Once an investor thinks like a business owner, it can help the person ignore the short term daily noise of the stock market.  For more great tips check out my recent podcast where I discuss how to get prepared for higher taxes and how to invest with the stock market at a record high.  https://www.listennotes.com/podcasts/americas/how-to-prepare-for-higher-sGDnyZij3xq/

Warm wishes,

Nolan Baker

 

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