Best Single-Stock Investing Posts

The Small Investor Blog is a big place with a lot of good information.  The trouble is, it can be hard to find the information you want since there are a lot of posts.  This is the first in a series of posts designed to lead you to what I consider to be the best posts on a given topic.

This first series is a group of posts related to single stock investing.  These are for those who want to buy and sell single stocks and want to learn how to do it.  If you want to find the best posts I’ve written on single-stock investing, here’s a list of my favorites:

Why buy individual stocks?

Before you think about single stock investing, get your accounts in order.

Become an investor, not a speculator.  Here’s the difference.

Common mistakes you should avoid.

How many shares should you buy?

How many different stocks should you buy?

Learning the different types of stock orders.

Learn which stocks to choose.

Learn about value investing.

Learn about momentum investing.

Learn to catch a falling knife.

You can beat the markets.  Here’s how.

Hey GenY, You Really Aren’t a Socialist

IMG_0123About a third of those in the GenY/Millennial demographic back Socialism according to an April Harvard Institute of Politics Survey, while just under half support Capitalism.  This trend has been seen in the support for Bernie Sanders in the Democratic primary among young voters.  Yet I wonder if all of those young voters are rejecting Capitalism, or just what passes as Capitalism in the US lately.

Capitalism is when the free markets decide on wages, prices, and success or failure of a business.  At the core of Capitalism is the need to provide for the needs of people in the most efficient way.  Companies that are able to serve the needs of the most people the most efficiently are rewarded and grow.  Those that don’t serve needs effectively fail.  Think about two restaurants across the street from each other.  Both serve your need to eat.  If one had slow, surly service and charged $20 for a baloney sandwich, while the other had fast, friendly service and charged $6 for a hamburger and fries, you and virtually everyone else would go to the second restaurant.  They served your needs better and more efficiently.

Socialism, on-the-other-hand, is when the government either owns the businesses/provides the services directly or has so much control of businesses through regulations that they effectively own the businesses.  Under Socialism, businesses that have the best connections politically are the ones that succeed because government officials adjust regulations to benefit those with pull.  Also, groups with political pull get special advantages over others.  The needs of the customer rarely gets much thought because the government generally doesn’t answer to the customer.

In our restaurant example, under Socialism, the baloney place  might stay in business if the owner had connections in the government because the burger place might be taxed and proceeds given to the baloney place.  Maybe the baloney place charges $20 for a sandwich because they pay their workers $15 per hour, and they are therefore seen as more benevolent than the burger place that pays workers $7 per hour.  Under Socialism, the burger place might also be forced to raise their wages to the point where the burgers cost $25 each and the quality was lower to keep the price from going even higher.  The workers would then be getting $15 per hour, but they wouldn’t be able to get a meal below $20, so they really wouldn’t be doing any better.  There would also likely be fewer workers since the restaurant might need to automate to cut costs, or maybe just the owner and his family might run the place without workers so that they wouldn’t need to pay the high wages at all, so there would be no jobs.

Really, the things that millennials find so distasteful about the US economy are due to government interference with the economy.  In other words, Socialistic actions.  For example:

  • Under Capitalism, the investment banks that made the bad loans in 2008 would have failed.  The CEOs and bankers who made the bad loans would have been out of a job and had to leave without their golden parachutes.  In a few days, new banks would have sprung up, hiring most of the people who had worked at the old banks, because banking services are needed.  They would have bought the loans worth buying from the failed banks.   Instead, the bank CEOs who made gobs of money when times were good were bailed out with our money by the government, leaving the same people in leadership positions.  If you want people to be rewarded only when they grow jobs and provide good services, and you want people whose greed and mismanagement results in the ruin of companies and lost jobs to be removed from leadership, you are not a Socialist.
  • Under Capitalism, if you wanted to start a hot dog stand (or another business), you would just go buy the cart, hot dogs, cooker, condiments, and a sign and open for business.  Existing businesses, however, have used their connections in the government to create all sorts of regulations, making it difficult for you to open your business.  Public safety is often used as a reason for the regulations, but many regulations just place a burden that keeps new companies from starting.  If you want the ability to start a business easily, you are not a Socialist.
  • Under Capitalism, there would be many businesses for most services,  This would lower prices to the minimum reasonable price since charging more would result in a loss of business.  Socialism would limit choices since you wouldn’t be able to start a business without the OK of the government, or there would just be one business – the government.  This would mean that you would pay more for things because there were limited choices.  If you don’t like to get overcharged because you have no choice, you are not a Socialist.
  • Just as Capitalism creates competition for consumers which lowers prices, it creates competition for workers which increases wages.  With Socialism, you are paid on a preset scale, usually based on the amount of time you have worked at a location.  You might also be paid based on perceived need.  If there is corruption (as there always will be), people who have political pull will be paid more.  If you want to be paid based upon the value you bring to your company, you are not a Socialist.

So, if you dislike business bailouts, big monopolies, lack of opportunity, high prices, and wages based on political pull and tenure, you are not a Socialst.  Maybe it’s time to reconsider that Bernie support.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Knowing when to Double Down. Knowing When to Fold.

Let’s face it, bad stocks happen to good people.  A couple of years ago I discovered a company called The Container Store.  It was a relatively new company with just a short history of earnings.  Normally I like to buy older companies that have  a history, but I thought that I could get in on the ground floor for once.

So I bought a couple of hundred shares. Then I bought a couple of hundred more.  Then I bought some shares in an IRA account.  I was all in, waiting for the shares to move up as they expanded stores and people realized what a great company they were.

Then they started falling.  They fell from about $20 per share where I bought them down to $10 per share.  At this point, I decided to double down – to buy more shares at the lower price.  The advantage here is that when the stock starts to recover I’m making a gain rather than just making my way back to the level at which I bought the stock.  I thought surely this was just a fluke, that it was a good company, and things would recover.

Then it fell down to $5 per share.  Then it rose a bit.  Then it fell again.  Today it sits at about $4.75 per share.

One of the things I did at that point is to take the loss so that I could offset some gains I had on other positions.  Because I wanted to keep a position in the stock, I went ahead and purchased additional shares, then waited for about six months, then sold my original shares, locking in the loss.  Note that I had to wait at least 30 days after I bought the additional shares or it would have been a wash sale, which would mean I would not have been able to write it off on my taxes.

I bought the additional shares at about $4.50 per share, so I have a small gain on the new shares. Rather than buying more shares and taking the risk of an even bigger loss if the shares fell before the 30-day holdign period was up, I could have also sold the shares I had at a loss and then waited 30 days before purchasing more shares to avoid a wash sale.  I decided that it had fallen enough that it probably didn’t have much farther to go.  Of course, bad things sometimes happen….

So in The Container Store, I averaged down at $10 per share, and then again at $4.50 per share (at least for a few months).  Now that things have risen a little, the worst may be behind me.  Of course, I had shares of Pacific Sunware that bounced around between $2 and $6 for a couple of years before they finally declared bankruptcy.  They are now almost worthless.  I bought about 400 shares at $2 per share, waiting for the stock to recover again, but it never did.  I ignored the advice of my broker to take the gain and rode them right down to the floor.

In general, if a position takes a big hit like this, I let the dust settle (the damage has already been done – no reason to rush out and sell).  I look at the fundamentals of the company and also the trends in the whole industry.

  1. If the whole industry is down, I usually hold my position or buy more.
  2. If just the company I bought into is down, I look to see if something fundamentally has changed or if they just had a misstep.  If the latter, I will hold on or maybe buy more.  If the former, I sell out.

Of course, Kenny Rodgers said you need to know when to hold ’em, know when to fold them.  With individual stock buying it is more trying to be in the big winners before they become big and to ride them all of the way up.  Sometimes this means just holding onto some losers along the way, since folding early could make you miss out on something big.  I therefore tend to hold on and buy more rather than cash in,  Really, it all depends on what the fundamentals are telling me.

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.