Devoted to understanding the basics and fundamentals of investing

One of the most highly touted stocks by the MEDIA is IBM. They persistently refer to IBM as a GOOD stock. A GOOD company perhaps, but certainly not a GOOD investment. In fact, its selling price has not even doubled since 1968 (adjusted for splits). There has been NO GROWTH in this stock in over 20 years! Adjusted for stock splits, IBM was $75 in 1968. It hit $90 in 1973, and in 1990 was at $100! In between times it has just gone UP and DOWN. This is not the kind of performance suitable for your portfolio. You would have done better just putting your money into a passbook savings account for those same 20 years! The Glamor and Glitz of IBM's high tech computers (LAN servers) has exceeded its investment potential for many years. The management is simply too complacent. They like their HUGE salaries, and the status quo. (For years, their company policy was never to layoff any employee). They are not stockholders, and they really don't care if the company grows or not. They set up golden parachutes so they can escape wealthy if the company is taken over by better management. They also set up POISON PILLS to keep themselves in power. The poison pill prevents stockholders from getting a fair shake with their investment. "No growth" companies like IBM tend to remain "no growth" for decades. You can't teach lazy and unproductive management new tricks. They don't want to change. Furthermore, they consider stockholders to be a pain in the ass, and wish they could get rid of them. A stock MUST give the investor a fair return on his money. If there is no growth, then the dividend payout rate must exceed what you can get in a passbook savings account. Don't let any MEDIA propaganda convince you otherwise. My personal opinion is that the mutual funds ended up with HUNDREDS of MILLIONS of shares of IBM. They want out, and there is no one to buy that many shares of the stock. Every chance they have, IBM is heavily publicized in order to transfer shares from their accounts into yours! They have no other choice. The Pros don't want it. The uninformed public falls victim every time.

There are many stocks that have little or no growth. There are just as many stocks that have negative growth. I will not buy any of them. If I accept market risk to buy a stock, then I want growth of my investment. If I simply stashed my wad in the bank, I could get a 6% or better rate of growth with NO RISK OF LOSS! If a company is growing less than 6% a year, why should I take the risk of buying it? Either beat the bank or become the bank. And dividend payouts are not meaningful unless they can beat the bank's 6% bogie. In most normal times, dividend payout rates are less than 5%, so why would anyone bother? GROWTH is the answer. It is the hope of increasing dividends that make people willing to settle for a dividend payout of only 3%. However, if sales and earnings of the company are NOT growing better than 6%, why would anyone buy the stock? I certainly won't. Growth of the company is the PRIMARY reason to buy and hold any stock. Dividends are for the old, retired people, not for you. When you are retired (of old age, that is), you will perhaps be looking for dividends
then, so that you don't have to screw around anymore with trading and timing considerations.

The really great growth stocks are never publicized until the PROS want to sell them to you. In contrast to IBM, check out a chart book of Philip Morris. Notwithstanding the fact that it is considered a "sin" stock by the author of this blog, there is no place in MY chart book to quantify sin as a meaningful factor for stock selection, and MO has the traits that I want in a stock: An excellent history of growth. It is a medium growth rate stock: Long Term Values rates MO as a 5 year growth rate of 25%. A perfectly acceptable growth rate for addition to your portfolio. Assume a $4000 investment in MO in 1979. It paid a dividend of $.15 (adjusted for splits). It sold for about $4.00 per share (adjusted for splits). You would have purchased 1000 shares with your $4000 investment (adjusted for splits). Over the years, your investment has grown to over $57,000 (pxd at $55). You are also collecting about $1700 per year on your MO dividends. MO has raised their dividend payout in every year since you purchased your stock. You have NOT reinvested your dividends, and you have NOT done ANY trading in MO. You just bought and held a really GOOD stock. Results could have been improved by reinvesting your dividends at selected market low points. Admittedly, the odds are pretty good that FEW stayed invested in Philip Morris for that entire term. Fear gripped investors as the news media BLITZED MO with stories about cigarette lawsuits, over and over again. The "crash of '87" forced waves of selling by the public. (The public always sells LOW, remember?) MO fell from $120 per share to $85 and became a SUPER BARGAIN, which went straight up to $160, split 4 for 1 to $40, and has since run back up to $58. I am saying that as one of the GREATEST growth stocks of all time, Philip Morris has been sent reeling time after time over the Hype and Publicity of cigarette lawsuits, and each time was a great buying opportunity, since the pullbacks were typically 30%. Where Philip Morris was once split at a PE MULTIPLE of only 15 (or less), you will begin to see stock splits at PE multiples of 25, 40, or even higher. I will make a reasonable prediction for Philip Morris, assuming its growth rate continues as in the past: There will be a future stock split made at a PE MULTIPLE double or more to its current PE of 16. In just the past three years, the PE MULTIPLE on Philip Morris has slowly gone from 9 times earnings to 16 times earnings. At the end of 1972, Philip Morris was 30 times earnings, followed shortly by a 2 for one split. It wasn't until 1978 that MO made a higher high. Historically, Philip Morris is considered HIGH by its stock analysts when it goes above 15 times earnings, and it is a bargain when it is bumping 12 times earnings. Witness the runup in Philip Morris from a PE of 12 to a PE of 17 in less than 6 months. Is 17 high? Not by actual historical standards it isn't: During the last great bull market Philip Morris hit a high of 30 times earnings in January of 1973. Bear market low in 1974 was 12 times earnings. I am looking forward to the continued runup in PE multiples, in the LAST STAGE of this great bull market. The last gasp may bring a repeat of the fantastic exponential rise in both prices and PE multiples. Also watch for RAPID DROPS in margin debt as legions of pros sell out to the new surges in public demand for stock.

As with a lot of things in trading, nothing really changes very much, except perhaps, the names of the companies.