Tag Archives: Investing

Buy American Stocks

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Below is a snippet from an Op-Ed piece that Warren Buffett wrote:

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. …

Continue reading Warren Buffett’s opinion editorial, Buy American. I Am.

17,530% on Google on Friday

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Options traders who predicted Google Inc. would beat estimates earned as much as 17,530 percent on their investments today, the most-profitable bet among all U.S. equity derivatives.

Contracts giving the right to buy Google shares for $530 before the close of trading today jumped as high as $17.63 from their 10-cent closing price yesterday. That gain almost matched the 18,760 percent advance in the Dow Jones Industrial Average since the beginning of 1900, according to Bloomberg data.

Source: Bloomberg (Google Earnings Gave Options Traders a 17,530% Gain)

There’s a good Google Group’s discussion about this here.

Wow!! As soon as I get some disposable “play money,” options trading looks like it could be fun or at least the closest thing to Vegas without actually being there. I wonder if there’s a conservative way to trade options? Would that be buying puts and calls? (At this point I only know enough about options to know that those things exist…for what purpose yet I don’t know.)

General Electric DRIP

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Back in October 2004 I invested the proceeds from the forced sale of a mutual fund into a General Electric DRIP. I wanted a company that was large and well-established but was still focusing on innovation and growth. General Electric fit that profile and they have increased dividends for the past 31 consecutive years. That’s ultimately what I was looking for… a stable stock with a great dividend history. To boot, they have a number of great products. (However, I’m really bummed about NBC dropping iTunes support. Rather than restricting online support to just one service, it should be available as widely as possible. But that is another post…)

So I put that $993 into GE. I did the initial purchase with the help of NetStockDirect, which merged with Sharebuilder, which now is part of ING. Fortunately, I now can directly purchase my shares through BNY Mellon. I believe it cost something like $7.50 to set of the account. Dividends are reinvested automatically for free. Additional shares can be purchased for the low commission fee of $1. I have since added enough to bring the account up to $3000. And, since I have to pay for medical school, that is where it will stay until I start getting an income. I set up a Google Documents spreadsheet to keep track of how my investment is doing. My average cost per share is 34.46. In 3.14 years of investing I have earned $214.32 in dividends (am at about $97 a year right now) and have a profit of $260.46 (with the stock at 37.45). My compound annual growth rate is 2.68%, not too terribly good, but I’m in it for the long run.

I also put together a dividend growth calculator on the spreadsheet. GE for the last few years has averaged a 12% annual dividend growth. I assumed a 4% annual stock increase (very modest for GE since the the 10-year Average Annual Total Return is 10.70% for the year ending 12/31/2006). I then allowed the stock to grow with quarterly dividends being purchased. The good news is that if these variables hold for the next 20 years, my investment of $3000 will grow into $25,000. From there it will just continue to get larger and larger. Below is the chart that shows the hypothetical growth of GE Stock assuming these variables.

My goal now is to just forget about it and be pleasantly surprised when I’m 44 (wow, that seems a long ways away!)

Hypothetical Growth of GE Stock

Good resources:
Motley Fool: Drip Portfolio
Buy stock one DRIP at a time
the moneygardener: to DRIP or not to DRIP