Although all of the eight companies in the initial BloggingStocks pool are great companies, they are not often great investments -- unless you own them in an index fund and are investing in the overall market. Otherwise, you are placing a BET (which is exactly what you are doing, don't deny it) or more precisely a wager, that you know more than everyone else. Since there is not much likelihood of that, you must choose your wagers carefully. Your proposition (wager) is not only that your stock pick has a greater probability of going up in value versus down, but, that it will increase more than the average of the overall market AND that it will do so after accounting for fees and taxes. THIS IS HARD TO DO!
This is why Great Companies are only SOMETIMES Great Investments. It matters what you pay for them and when you pay it. Since I am not licensed to advise anyone about investments I can best exemplify this by sharing my own actions and those of other more noteworthy investors.
About two years ago I added Petro China (PTR) to my Capital Innovations and Roth portfolios. I was looking to add a high yielding stock after "cleaning up some mistakes" (I make too many of those) and taking some gains as well. PTR came up on a screen I did using three criteria; high yield, low P/E and low beta, because I wanted consistency and was not interested in a wild ride. Low and behold PTR pops up with a yield close to 5%, a P/E around 7.5 and a beta below one, not to mention lots of cash....WOW.
I started thinking about the market position of this company in China and the diversification value of a foreign company, which seemed like it was all the rage at the time, and still is. Now, one other factor affected my thinking. As sure as the sun is going to come up tomorrow, the population of China is going to use more oil tomorrow than they did yesterday, and there is zero chance of the reverse case being true. Well how often can you know something for sure? So I jumped in at $44. A few weeks later, and after some additional review of the matter I took a second swing at $55. About a month later it was reported that I had a fellow investor named Warren Buffett who took a billion dollar position. Now I felt blessed and Lucky! So I have followed PTR up to $121.50 over this time (currently around $110) and consider it a core holding for the long term.
Well, today it is still a great company; it still pays a great dividend; and still allows for diversification, but is it a screaming buy, NO!
I continue to watch PTR patiently and at the right price I might add to my position if there is not a better case for something else. This is true for almost all stocks today, they are not buys, and an index fund would serve you better. All of our eight Stockblog companies are worth watching and if you got in at the right price, marvelous. Otherwise be patient, look for value and remember you are betting real money and your future.
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Reader Comments (Page 1 of 1)
5-27-2006 @ 6:55AM
Eric Johnson said...
These stocks you guys are blogging about are certainly not diamonds in the rough. The attention they are getting it is highly unlikely that they will be missed by anybody.