INDIVIDUAL STOCKS
Q: Is this a good time to get into the stock market?
A: A flat-out yes, unless you need to keep the principal
value of your assets in tact in order to provide subsistence income
or to make some large purchase down the road. Otherwise, if we answered
no, then we would be suggesting that you wait and waiting is timing
the market. Attempting to time the stock market with leaps in and
out at what looks like “appropriate times” is sheer folly.
Q: Is the stock market overpriced?
A: Overpriced relative to what? Most advisors, analysts and
economists compare the price level of a stock to its current earnings,
forgetting to look back at what a quality company has done over
the long run and ignoring company prospects for the future. In our
opinion, this is a narrow focus, fostered by the so-called price-earnings
ratio. That all-too-handy gauge is outmoded. In today’s more
dynamic market, a stock is properly priced at what the next investor
is willing to pay for it. The future of quality publicly-traded
companies worldwide is extremely bright.
Q: I’m not in the stock
market, but I believe I should be. Please send me a list of stocks
to buy.
A: It’s not that simple. If you are not in the stock market,
particularly if you have never been in it, you must soak up some
fundamental knowledge before you buy that first stock. You need
to do a lot of reading and practice research skills. The stock market
is already rife with risks, complexities and quirks and leaping
into it unprepared is asking for more trouble. Be patient as you
prep yourself. The market will be here long after we are.p>
Q: I want to get into the stock
market and I need someone to advise me as to what to buy. Can you
recommend a stockbroker, financial planner or someone else I can
consult?
A: The best route, in our opinion, is to educate yourself
about the stock market, learn to research stocks on your own, and
deal with a discount broker. A discounter doesn’t offer advice,
but charges much lower stock commissions. For example, the commission
on 100 shares of a $50 stock at a full-charging broker would run
about $100, while a discounter charges much less. Get into the larger
trades and the differences are mind boggling. Full-charging brokers
justify the high cost by declaring they offer continual comfort
and personal service to their clients. It’s a frill that the
educated investor can live without.
Q: A stock is going to split
2-for-1 next month. Should I buy it now or wait until after the
split?
A: If you have researched the company and are convinced it’s
a good buy, then buy it now. The price could drop between now and
the split date, but is more likely to rise in anticipation of the
split simply because other people will be buying just as you. If
you are looking longingly at the price falling in half on the split
date, then buy 50 shares now and you’ll own 100 when it splits.
(In a 2-for-l split, a company effort to make a stock’s price
more attractive, the price is cut in half and every stockholder’s
share count is doubled.)
Q: Some companies pay an annual
dividend to shareholders, but more emphasis is placed by advisors
on the “dividend yield” rather than the actual cash dividend.
What does it all mean?
A: The annual cash dividend, say $2 per share per year, is
meaningless unless the price is factored in. The more important
dividend yield is calculated by dividing the current price into
the annual dividend. So a $50 stock paying $2 a year carries a dividend
yield of 4 percent, meaning the buyer gets back 4 percent of the
purchase price every year, unless the dividend is cut.
Q: I wanted to buy into an initial
public offering (IPO), but my broker turned me down, saying, in
effect, that I’m not a big enough customer to get in on the
ground floor. Where can I go? (An alternative question has the broker
not returning calls.)
A: Probably thousands of investors have been spared the devastation
of initial public offerings because they were barred from the club.
To get in on the ground floor of an IPO (a stock newly coming to
the market) you do, indeed, generally have to be a “big customer.”
Each broker is allocated a limited number of shares of the new company
and generally assigns them to his or her highest net-worth and most
active clients in order to maintain their loyalty. Buy only stocks
with long earnings histories, like five to 10 years or more.
Q: I like to hold my own stock
certificates. I feel safer that way. If I leave them with my broker,
as many advisors suggest, I’m worried they will just disappear
and then where would I be?
A: They are more likely to disappear in your hands than in
Wall Street’s safekeeping system. But the main reason for leaving
them with your broker, or what’s called “street name,”
is that you facilitate future trading. To sell any shares you own
now you would first have to deliver the certificates to your broker.
Your holdings are safe in your broker’s hands, well covered
by insurance.