Guest Editorial: Investing with Small Potatoes; Examining the value of your stock selection

By Ray Maratea — 

Not too far back, the Dow Jones Industrial Average lost about one thousand points, causing me great pleasure. Why? Because as a seasoned investor, these fluctuations provide a smorgasbord of stocks at deep discounts. Schwab’s platforms allow you to arrange your portfolio to show all of the big losers according to the sum of money they have lost.

This column offers you a way to look closely at the stock you’re considering buying by using information easily available in your brokerage account.

In the research section of your account, select “Stocks.” Enter the stock symbol in the area where you see a search mark. Again, a Google search will allow you to find the symbol if needed.

Once the stock in question appears, you must do your analysis of the stock. 

When you decide on a stock, never forget why you were attracted to that stock. I say this because it is a fact that, to some extent, the stock market is “manipulated.”

Traders in the stock market profit from living by driving the price of a stock up and down. These individuals are called “Day Traders.” So, I repeat, never forget the reason you selected a stock. If you buy with a long-term holding, you should ignore the market’s gyrations. Here I list the factors you need to focus on when selecting:

Company Profile. Here you will find information on what kind of business they are in, and at the bottom, a date the business was founded. You will be surprised that some are over 200 years old.

Rating by analysts. Here you will find several firms offering their rating. Morningstar is a reputable firm and very picky about the companies they analyze. They use a term “Moat” in their analysis that others do not use. If you picture in your mind a castle with a drawbridge and a body of water surrounding it, it will make it easier for you to understand what they are telling you and why a company with a wide moat is so strong that anyone wanting to compete for their business would have to spend a huge amount of money to get started, and they would give up the idea.

Capital Strength. On Charles Schwab’s platforms, there is a section where they show your stock and others in the same classification. Here you will find a wealth of information.

Volatility. indicates whether the stock is stable or subject to high daily trading numbers. I like a rating of 40 or under.

P/E Ratio. This tells you if the stock is priced too high. I like to be in the ten to thirty range. When you hear a financial station reporting that a company is expected to earn $2.00 a share, you should look at the P/E and if the P/E is 10, then ten times $2.00 would mean the stock should be selling for $20.00. If the stock sells for more than $20.00, then you need to justify spending far more than its fair price. To make it easy for you to decide, because the information is not readily available, stay in the range shown, mine being the ten to thirty range.

Dividend yields. Many quality stocks pay small amounts in dividends. Only you can decide whether you want to own one or more of them. I have purchased low-dividend payers solely to keep my portfolio more equally balanced within the sectors I like. 

Quarterly and monthly dividend payers. When searching, don’t exclude monthly payers, as owning a small number or assortment of monthly payers will provide a stream of income to which you can add a few dollars more to buy another stock that pays its dividend quarterly. I own about 30 monthly dividend payers in small numbers. This strategy minimizes my risk exposure.

Now that you have read the second column in which I listed the sectors, I want to touch briefly on another class of stock hardly ever mentioned because they are not listed as such in the stock market.

Conglomerates. A conglomerate is a company whose investments in other companies are many. I know of two, and one is BRK/B which is called a financial. The other is IEP, which is called an industrial conglomerate. The first company was formed by the famous Warren Buffett, is high-priced, and doesn’t pay a dividend but is considered a “growth stock.” IEP was formed by Carl Icahn, pays a hefty dividend, but it’s risky. If you go to the website of your brokerage firm and look for “Research,” you can enter the stock symbol and then read their profiles; you will understand what I am saying.

Here is a monthly dividend payer EFT. Remember, do your due diligence. 

If you have any questions, you can contact me by email at investsmallpotatoes@gmail.com. Otherwise, be sure to check this newspaper again for more Investing with Small Potatoes. 

(Raymond Maratea is a former resident of Candor, who built his home on Schumacher Road.)