Comparison shopping for stocks

This morning, IFO was listening to one of those weekend investment advisory radio programs. She was surprised to find herself agreeing with most of what they said.

Many programs she’s heard have simply advised paying a financial advisor and/or buying only mutual funds and/or ETFs, but these guys actually considered the possibility of buying individual stocks, IFO’s preferred investment policy.

They did use the usual scare tactics – stock could go down 60% to 70%, or even to zero! They also answered a question relating to “worst mistakes individual investors make.” First answer was forgettable, second answer was “emotions.” IOW, investors make decisions based on fear (stocks will go down) or greed (faith that stocks will go up).

Third answer was dollar price of the stock! Really? Does anybody do that in this day of ability to buy fractional blocks. Back in the olden days, people bought in blocks of 100 shares, and paid a huge fee to buy partial blocks – anything less than 100 shares.

A few years ago, IFO had the opportunity to look at some old brokers’ slips – records of transactions. In this day of paying about $7 more or less to buy any number of shares, she was stunned to see fees of $50 to $70! Brokers charged a set fee then a certain amount per share. No wonder trading volume has gone up so much on the stock markets.

Back to the radio program. The metrics these guys used were quite different from IFO’s. To this moment, she’s not clear on exactly what they were looking at. They talked a lot about “risk,” but what does that mean? We think it means gross return – % price increase/decrease + dividend yield. The higher that amount, the higher the risk?

As long-time readers know, IFO looks primarily at yield (% return from dividends) and PE (price divided by per share earnings). It is very easy to compare different stocks this way, using the handy-dandy charting provided by Yahoo! Finance.

The big Stock of the Week the hosts liked today was Precision Castparts (PCP:NYSE), a 60-year old Oregon company making airplane parts and other items. Market cap – $29B, PE – 20, Yield 0.12%. The hosts said it was a “value” buy, because the price had been beaten down too much in their opinion.

IFO has a stock that is similar, W.W. Grainger Inc. (GWW:NYSE), an 88-year old Illinois company that distributes maintenance, repair and operating supplies. Market cap – $16B, PE – 21, Yield – 2.00%.

Let’s go to the charts. Here’s the two year chart: 2 Year Comparison and just for fun, let’s look at the 5 Year Comparison of the two stocks. [Note: IFO tested these links. They only work for PCP, so you’ll have to put in GWW yourself. Just click on the blue + sign on the upper left corner of the chart where it says, “Comparison” and enter “GWW”]

Now, maybe some readers could stand the heart-stopping leaps and plunges of PCP, but IFO prefers the steady pace of GWW. Further, during the five-year period, PCP would have paid average dividend yield of 0.10%, or $10 per $10,000 per year. GWW, currently paying $200 per $10,000 invested, paid an average dividend yield of $150 per year.

Meanwhile, if you bought and held both stocks during that five-year period, PCP’s price would have increased 94% and paid $50 worth of dividends, while GWW’s price would have gone up 134% and paid $750 in dividends.

Note: IFO does not pay anyone for investment advice. Broker’s fee would have been the same for both stocks. $7. Period.

Just sayin’

Someday, she’ll discuss some of her losing investments in the hope that readers won’t make the same mistakes she did. One early mistake – she didn’t read the prospectus about a proposed merger! And lost something like 90% of her investment. Entirely her fault!




About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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