Before I write the rest of this article, I will tell you what I recently discovered that will make me wait a few months before buying stocks. Hedge funds are collapsing left and right. They will pump billions of dollars out of the stock market over the next few months as they crumble and die. Additionally, mutual funds will submit statements showing 30% losses. This could scare both 401k savers and normal investors out of these funds. So I expect the stock market to go down for the foreseeable future before it goes up. So read this article as if it were January 1, 2009 and you will see how I recommend investing.
Now that the stock market has crashed, what should you do next? There are two ways this market could go. One is lower and more liquidations. The other is that the stock market simply stalls around its current levels. So the best solution for this market is still the old solution, big companies with lots of cash and paying dividends. I have always liked Philip Morris (stock symbol PM) and Altria (stock symbol MO) as they pay very good dividends.
Companies with no cash or large debts cannot protect themselves in this market. They will have to take on more debt and then risk bankruptcy. Cash will have run out, so any business that hasn’t saved a lot of money will have to pay high interest rates to borrow money. If they can’t afford the high interest rates, they will have to sell out and negotiate basement prices. Keep the stocks you own something of. You will be surprised how much you know. Wal-Mart (WMT) is a good deed that we all know. They will lose some market share, but gain more market share as their low prices are attractive. Procter and Gamble (PG) is another great action that will work well. They do a lot of staple foods that people must have. McDonalds (MCD) will be the budget restaurant that gains market share as people forgo expensive restaurants and head to McDonalds.
Yes, you must do your own research. I advise against (against what I said!) hiring a financial advisor. I have put so many people who have lost a fortune listening to financial advisors. Financial advisers charge you a lot of money and do not beat the street as they say. You’ve probably heard of the monkey throwing darts at a board to pick stocks. Then they had a financial adviser pick his favorite stocks and waited a year. The monkey won. I could go into why and how all profits are siphoned off by managers and therefore it is useless to try to find big companies. I recommend buying an index fund or mutual fund if you don’t have time to research your own stocks.
Some people have access to reports on their online broker’s website, such as Schwab. I found that most analysts have sold almost all companies so they don’t look bad after missing out on the mortgage meltdown. The rule I live by is to keep it simple, stupid, and it has worked for me. I will share my research on Google and what I think about them.
Google is number 1 in Internet searches. They are expanding to foreign markets. They have great leadership and hire forward-thinking, creative programmers. They get many talented people applying for jobs because of their reputation as a great company. They are launching a new product, a mobile phone. So I know that I will take risks if the mobile phone fails. Google has a market share of 72% in Internet searches. They also have a large amount of data about each Internet user. They are using this data to personalize their ads and charge companies more money. When a user visits a website, the company wants to know details about that person. They want Google to tell them the person’s age, gender and where they live. So if the person is between the ages of 16 and 30, male, and lives in the New York area, the company is willing to pay a lot of money to advertise to that person.
This is how Google gets most of its money. A website is registered with Google. They agree that Google displays advertisements on their web pages. Let’s say the website is about cars. So Google shows an ad for GM. GM only wants people between 18 and 36 years old. When a person visits Google’s website, Google verifies the user and sees that the user’s criteria matches the age of 18-36. Google displays the GM ad and the user clicks the ad which takes them to the GM website and offers them a 10% discount on a new GM car. Google charges the GM $4.00 per click and gives the originating website $2.00 per click. Google continues to improve their system and the way they target ads, so I expect them to see good growth for another two years. They basically crushed their competition. They will raise their prices for clicks and companies will gladly pay. They have so many types of data, especially personal data that no other company in the world has except the United States government. I will watch the launch of the mobile phone to see how well accepted it is.
This is an example of how I research a stock. Many stocks that I determine are not worth buying. Google is a rare one that I liked. I’ve researched Intel and determined they’re about a $10 buy. Intel has fierce competition and a manufacturing cycle where it’s hard to make a profit. Now I know that this market is lousy and that it would be best to wait. Even Warren Buffet has lost 6 billion in this stock market crash. Google should hit $1000 sometime in the next 5 years. That’s 300% off today’s price.
Remember, read all the articles you can find and pay attention to what they are doing.
Use Google to search for information about the company you are interested in. Find out how much money they are paying their executives. I hate to see executives making 5 million. It’s a waste of company money, as only a few people are worth that kind of pay.
