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The More Boring The Better This week in The Juice, we’ve learned a few investing lessons. Avoid uncertainty. Aim for relative stability by owning industry leaders. Always keep it simple. Allocate heavy to broad market ETFs and blue chip stocks. Speculate sparingly. The comparison we make in today’s edition of The Juice should drive all of the above home and more. But first… This Doesn’t Mean You Should Never Speculate Speculative investments have made more than a few people rich, particularly over the last decade. If you didn’t get rich, you might have banked meaningful, even life-changing profits. Keyword in that last sentence – banked. Source: Google Finance
The problem with stocks like Netflix (NFLX) – they can breed overconfidence. As the analysis we make in just a quick scroll illustrates, other than garden variety tech stock volatility, Netflix had gone up in a pretty much a straight line over the last five, ten years. Seeing this success can make you greedy, if not overconfident. Greedy because the bull market we’ve experienced for most of the last two decades has conditioned us to think stocks only go up. Overconfident because we think we’re somehow special for riding this market higher. Face it – we were born on third base, thinking we hit a triple. Investing is never easy, however, as we discuss in a second, you can make it easier. You just gotta be okay with boring. |
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Investing |
Two Stocks, One Way To Avoid A Terrifying Investment Lesson |
Key Takeaways:
First things first. You don’t hear this much on Twitter or Reddit, but the number one rule of speculative investing. Or, if you don’t like the word speculative, of investing in high-flying stocks simply because they’re flying high. The number one rule – take profits. The Height Of Inanity In Investing Yes, inanity. It means a lack of sense or meaning, whereas the sometimes related insanity just means you’re crazy. Inanity might be worse. Because you have control over your faculties, yet nonsensically decide to not use that control. Like the cats on Reddit who refused to sell AMC, GME, DOGE, SHIB or whatever despite sitting on self-reported massive profits. They held – HODL! – out of this strange loyalty to some sort of us (the little guy) against them (hedge funds!) cause. Give me a break. You had every opportunity to make bank on those names – and now on NFLX – along the way. At the very least, pull out your principal and then some. Or just cash out completely and move on with your wealthier life. Or You Could Have Just Gone The Unexciting Route Source: Google Finance
The thing you also don’t see on Twitter and Reddit is that to really make bank on a Netflix (or any of the above-mentioned) you have to get out before it crashes (my apologies if that stings a little today). And, a big crash aside, you had to time your trades right. Because, despite the aforementioned pretty much straight line, buy-and-hold on NFLX still required some nimbleness and an exit strategy prior to Tuesday’s close. Not the case if you paved the boring path with Procter & Gamble (PG). Solid Growth AND You Collect A Dividend! Procter & Gamble reported earnings Wednesday. The company beat on profits and revenue. Why? Because Procter & Gamble produces things like laundry detergent. Shit people need. They have incredible pricing power, which helped PG withstand the impacts of inflation, such as margin pressure. You can say none of these things about Netflix. You don’t need Netflix. And the company has virtually zero pricing power. Yet, after NFLX’s crash, PG has returned more from a share price standpoint over the last five years. Remove Wednesday’s carnage from the equation and NFLX returned roughly 139% over five years compared to PG’s 85%. However, with PG you get two other things NFLX has never offered shareholders:
As we noted in The Juice the other day with McDonald’s (MCD), slow and steady dividend stocks often win the race. Just like MCD, PG yields around 2.2%. It pays a $3.65 annual dividend. It has increased its dividend every year for 65 years, putting it at the top of the Dividend Aristocrats list. We repeat: Avoid uncertainty. Aim for relative stability by owning industry leaders. Always keep it simple. Allocate primarily to broad market ETFs and blue chip stocks. Speculate sparingly. The Bottom Line: Know when to say when. Hopefully, you knew when to say when on 4/20. Hopefully, you’ll do likewise on Cinco de Mayo. Slow and steady wins the race, only to be topped by moderation. So, yeah, take profits. Like with Tesla (TSLA). The company crushed earnings on Wednesday. The stock’s back over $1,000 (as of after hours on 4/20) and has gone up nearly 1,500% over the last five years. If you own TSLA, it might make sense to sell at least a little, using NFLX as a lesson and PG as a guide. Those profits would look nice in a strong, stable dividend stock such as PG or MCD. |
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