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Sheepdog Guides Investing

Diary of the project

(This is a sub page within a project which tries to spread understanding of how stock market investing works. If you have "dropped in" from outside, and the following doesn't meet your needs, it may be worth visiting Sheepdog Guides Investing's main page.)

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2012, March 16th: Purchase of Pepsi and Coke shares- I've been procrastinating, and it has cost us money. Prices on stocks, generally, have risen over the past two weeks. Coulda, shoulda, woulda, put more of our cash to work, i.e. invested in shares, but other things got in the way. I am buying both Pepsi and Coke in my real world investing. Neither have (yet) participated (much) in the recent rise in prices, and I still like them, so buying them while I can, at "yesterday's" prices. (Of course there may be a reason they have not been rising along with the others.) In buying both Pepsi and Coke, I am "breaking a rule"... until you look a little deeper. It would seem that they are both "cola companies". And, to an extent, they are. The rule is: Decide which one is the best bet, and make your bet there. Don't buy the best cola company, and then some of the second best. However, if you study Pepsi and Coke, you will begin to find differences. by having them both in the portfolio, I hope to encourage you to watch what can happen with two "similar" companies over time.

The big difference between them is focus. Coke is mostly "just" a cola company. Pepsi sells cola... and snacks.

In many other respects, they are remarkably similar, on 16 March, anyway... (Yahoo figures)

Coke    Pepsi
159B     101B    Market cap (Okay... not "close", but both BIG)
  19       16    P/E (ttm)
2.90%    3.20%   Dividend yield

Even, by a largely unimportant coincidence, the prices were close: $70 (Coke) and $64 (Pepsi). As a general rule, the price of a company is not terribly important. The current price relative to many things is immensely important. But the absolute price doesn't matter much. (Company "A": 1000 shares, $20 each, Company "B": 100 shares, $200 each. Is Company "B" "bigger", just because the per share price is $200? No. Both are worth $20,000 (that's their "market cap", by the way. ("Cap" short for "capitalization".))

I like these companies for being "the best at what they do"... other people do sell cola, after all... but can you name any of them?

I like the fact that they have extensive international operations. Some regions are encountering difficult economic circumstances, and people are less likely to spend money on a cola... but other places, places Pepsi and Coke are selling their products, are doing well, so Pepsi and Coke should do well, at least there. And if they are "good" companies, they know how to "damp the fires" of their operations in regions which, currently, are sluggish.

2012, March 16th: Coulda, shoulda, woulda: As mentioned above, I've been procrastinating. If I'd "got around" to doing some investing of the $100,000 that started this story back on March 3rd, I could ALREADY have made the following gains. The stocks listed are not things picked because they were the "big winners" over that ridiculously short period... they are big winners for the period selected from the rather short list of stocks I have bought "in the real world" in the past year....

Stock  From  To
cvx     108   110  (112 on 14th)
gd       71    73
ttm      27    28
cat     106   113

While it is an exception to the rule, there is also...

Stock  From  To
ftr    4.50  4.30  (A small phone company)

... which, sadly, I also owned during the period. The price of stocks goes down, as well as up... especially when you own them, it seems!

The ones which have gone up may not seem to have "done much"... but if so, you've come to the right place... you need to adjust your thinking.

If there were no transaction costs (no fees from your broker for doing the buying and selling for you), and if the CAT shares would rise so nicely for a year, then you could turn $106 would turn into $338 in just a year! (By the way, the government would take money from you (capital gains taxes) if you were that lucky.)

Of the others, which would have been the worst investment choice? The TTM? It only went up a dollar, after all. But!... it went up a dollar for every $27 you invested. The GD and the CVX both went up $2... but to get that $2, you would have to invest $71, or $108! You could have bought 3 shares of the TTM.. and made $3.. for less than it would have cost you to buy 1 share of the CVX... which would have made only $2 for you.

Notice another thing: If, as I said, there were no transaction fees, and the year went as the 11 days went, then you would make the same money on one share of GD as you would make on one share of CVX.... but you would only have to tie up $71 for the GD, vs $108 for the CVX. (By the same logic, the "small" loss of 20 cents per share on FTR is actually a huge loss... when you compare it to the small price per share.)

While of course there are transaction costs, and of course a year doesn't proceed the same way as a 11 day period, you should still pay some attention to short term ups and downs. If you see a bunch of things up 1% in a week, is it a short term burst of enthusiasm, which will soon fade... or is it the start of a longer period of rising prices? Should you buy shares now, as "the train is leaving the station", or wait for the prices to come down again? Maybe even sell the shares you currently hold in a company about which you have become less enthusiastic? "A rising tide lifts all boats"... some more than others, true. But a bad stock can also "sink" fast in a negative environment. Best to sell it for a poor price, than find yourself selling it for a very poor price later?

Those examples, by the way, are real, and weren't carefully selected to throw up the particular points that I made. The numbers just happened to come out nicely for my purposes.

(This whole hypothetical portfolio started on 3 March, a Saturday, so the 5th was the first chance to buy shares. I'm writing this after the markets closed today, so have used the closing prices.)

2012, March 5th: Purchase of Google shares- Yes, I think buying shares in Google is a good thing. No, I wouldn't usually buy just ten shares in a company, for a bunch of reasons, but I wanted to start this project with a purchase of Google shares, and I didn't want the cash committed to be disproportionate. (Ten shares of a company trading at $622 per share isn't a trivial investment.)

2012, March 3rd: Finally started this project. Have meant to do something like it for a long, long time.

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