You know that moment when you look back and wonder: what the f*** I was doing, spending too much time in front of the screen? That’s me right now!
I’ve been interested in several investment topics since I can remember and only now I can finally realize I didn’t need that overwhelming amount of information.
If you value your precious time, stop right now and pay attention to a piece of honest advice: several proven cases show that you just need a tiny fraction of financial data to build a conservative strategy, reducing your risks on stocks for the long run.
I know some of you truly enjoy deep analysis of companies, however, I’ve got some suggestions for your time: go to the gym, update your Netflix series, drink some beer with your friends, spend more time with your family and, please, do not forget to feed your cat (they would never forgive you for that!!).
The bottom line is: you just need to avoid terrible choices. Don’t trust me? OK. Just look at the numbers.
Proof #1: in the end, profits are the one thing that matters the most.
Among all those data from financial reports, there’s one that summarizes the economic situation of the company: profit (aka net income, as they like to call it). Look at these simple comparisons between good net income and stock prices:
Apple (until Nov, 15th):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2008 | 1,072 | 12.19 |
| 2009 | 8,235 | 30.10 |
| 2010 | 14,013 | 46.08 |
| 2011 | 25,922 | 57.85 |
| 2012 | 41,733 | 76.02 |
| 2013 | 37,037 | 80.14 |
| 2014 | 39,510 | 110.38 |
| 2015 | 53,394 | 105.26 |
| 2016 | 45,687 | 115.82 |
| 2017 | 48,351 | 169.23 |
| 2018 | 59,531 | 157.74 |
| 2019 | 55,256 | 265.76 |
Walt Disney (until Nov, 18th):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2009 | 3,609 | 32.25 |
| 2010 | 4,313 | 37.51 |
| 2011 | 5,258 | 37.50 |
| 2012 | 6,173 | 49.79 |
| 2013 | 6,636 | 76.40 |
| 2014 | 8,004 | 94.19 |
| 2015 | 8,852 | 105.08 |
| 2016 | 9,790 | 104.22 |
| 2017 | 9,366 | 107.51 |
| 2018 | 13,066 | 109.65 |
| 2019 | 12,798 | 144.67 |
Home Depot (until Nov 19th):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2008 | 1,958 | 23.02 |
| 2009 | 2,661 | 28.93 |
| 2010 | 3,338 | 35.06 |
| 2011 | 3,883 | 42.04 |
| 2012 | 4,535 | 61.85 |
| 2013 | 5,385 | 82.34 |
| 2014 | 6,345 | 104.97 |
| 2015 | 7,009 | 132.25 |
| 2016 | 7,957 | 134.08 |
| 2017 | 8,630 | 189.53 |
| 2018 | 11,121 | 171.82 |
| 2019 | 11,203 | 238.85 |
MasterCard (until Nov 19th):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2008 | -939 | 14.29 |
| 2009 | 1,463 | 25.59 |
| 2010 | 1,847 | 22.41 |
| 2011 | 1,906 | 37.28 |
| 2012 | 2,759 | 49.12 |
| 2013 | 3,116 | 83.54 |
| 2014 | 3,617 | 86.16 |
| 2015 | 3,808 | 97.36 |
| 2016 | 4,059 | 103.25 |
| 2017 | 3,915 | 151.36 |
| 2018 | 5,859 | 188.65 |
Monster Beverage Corp (until Nov, 2019):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2009 | 113 | 6.40 |
| 2010 | 210 | 8.71 |
| 2011 | 285 | 15.35 |
| 2012 | 338 | 17.61 |
| 2013 | 337 | 22.59 |
| 2014 | 482 | 36.11 |
| 2015 | 545 | 49.65 |
| 2016 | 710 | 44.34 |
| 2017 | 818 | 63.29 |
| 2018 | 992 | 49.22 |
| 2019 | 1,090 | 59.03 |
On the other hand, let’s take a look at some poor net income:
Newmont Mining Corp (untill Nov, 19th):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2008 | 561 | 40.70 |
| 2009 | 2,093 | 47.31 |
| 2010 | 2,302 | 61.43 |
| 2011 | 302 | 60.01 |
| 2012 | 2,111 | 46.44 |
| 2013 | -2,795 | 23.03 |
| 2014 | 329 | 18.90 |
| 2015 | 304 | 17.99 |
| 2016 | -943 | 34.07 |
| 2017 | -109 | 37.52 |
| 2018 | 380 | 34.65 |
| 2019 | 2,338 | 38.35 |
Milestone Scientific Inc
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2010 | 0 | 1.02 |
| 2011 | -4 | 0.36 |
| 2012 | -2 | 1.45 |
| 2013 | 4 | 1.70 |
| 2014 | 0 | 2.30 |
| 2015 | -6 | 2.35 |
| 2016 | -6 | 1.40 |
| 2017 | -4 | 1.18 |
| 2018 | -5 | 0.33 |
| 2019 | -3 | 1.12 |
M - Macys Inc (untill Nov 21st):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2009 | 329 | 16.76 |
| 2010 | 847 | 25.30 |
| 2011 | 1,256 | 32.18 |
| 2012 | 1,335 | 39.02 |
| 2013 | 1,486 | 53.40 |
| 2014 | 1,526 | 65.75 |
| 2015 | 1,070 | 34.98 |
| 2016 | 611 | 35.81 |
| 2017 | 1,536 | 25.19 |
| 2018 | 1,098 | 29.78 |
| 2019 | 1,025 | 14.67 |
Tripadvisor (until nov, 21st):
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2011 | 177 | 25.21 |
| 2012 | 194 | 41.92 |
| 2013 | 205 | 82.83 |
| 2014 | 226 | 74.66 |
| 2015 | 198 | 85.25 |
| 2016 | 120 | 46.37 |
| 2017 | -19 | 34.46 |
| 2018 | 113 | 53.94 |
| 2019 | 117 | 28.06 |
GAP:
| net income (US$ millions) | year closing price | |
|---|---|---|
| 2009 | 1,102 | 20.95 |
| 2010 | 1,204 | 22.14 |
| 2011 | 833 | 18.55 |
| 2012 | 1,135 | 31.04 |
| 2013 | 1,280 | 39.08 |
| 2014 | 1,262 | 42.11 |
| 2015 | 920 | 24.70 |
| 2016 | 676 | 22.44 |
| 2017 | 848 | 34.06 |
| 2018 | 1,003 | 25.76 |
| 2019 | 937 | 16.22 |
By the way. I love searching for vacation tips and hotels on TripAdvisor. But, would I buy their stocks? Not for a while...
And you know the most exciting?
It doesn’t matter the country you live in! If you pay attention to stocks in your home, you’re gonna find the same pattern!
Proof #2: diversification is your best friend.
Now you might wonder: what if a company fails? Well, in this case, diversification is your best friend.
Let me ask you another question: if you had $100 on your wallet right now, would it hurt too much if you suddenly lost $2?
Pay attention: It’s not a math question! Of course, you’re gonna have less money in this case. What I’m really asking is much simpler: would you really care if, someday, walking on the street, you lost $2?
The answer is more revealing than you think:
If you said “yes, I do care”, listen to a piece of honest advice: stocks are not for you. But don’t worry! There’s absolutely nothing wrong about that. You just gotta find what suits you best. No investment should keep you awake at night!
On the other hand, if you said “no, I don’t really care…”, I have some great numbers to show you.
When your portfolio is properly diversified, the risk of bankrupt of one specific company will represent only about 2% of your portfolio.
Just follow this practical step-by-step system:
First of all: you don’t wanna go all in! Keep Vegas mood out of this! Instead, let’s take smooth steps so that we can keep our process less risky.
Each month, you will take that part of your savings you wanted to put on stocks and buy shares of only one company. Let’s say $300 per month (you decide how much, but take it easy).
And each month, you’ll buy shares of a new company, gradually diversifying your portfolio. In the beginning, you will see just a few companies in your portfolio (and it should begin like this), but over time, you will notice a constant increase in the numbers of shares.
It goes like this:
1st month: $300 on company 1 = 100% per company
2nd month: $300 on company 2 = 50% per company
3rd month: $300 on company 3 = 33% per company
(…)
10th month: $300 on company 10 = 10% per company
(…)
50th month: $300 on company 50 = 2% per company
As you can see, in the first month, 100% of your portfolio is concentrated in one single company, however, it’s only $300 at that moment (that’s why it’s so important to keep it slow).
After a while, even though your portfolio has increased, your risk has been gradually reduced, thanks to diversification.
And there’s more: even if one specific company fails or faces a hard time in its financial situation, remember that you already chose other high-quality stocks, based on consistent profits. In this case, statistics are on your side and the companies are very likely to be gradually growing.
Proof #3: During a crisis, good companies are like professional fighters under pressure.
Have you ever seen a professional fighter under pressure on the ring? He may get several punches on the face and even be pushed to the corner, but due to his consistent training, proper nutrition and all the professional team on his side, he is able to stay tight, defend himself and overcome the pressure.
The same logic applies to stocks. Companies with a long history of consistent profits are more likely to survive when crisis punches them on the face. They may see their profits reduce or even experience some losses (like Mastercard in 2008, as shown above), but their overall positive financial situation enables them to overcome the situation in the long run.
One last warning: in most cases, prices will drop severely during a crisis, regardless of the financial situation of the company, but, just like a professional fighter, you need to stay tight for the long run.
I can’t stress this enough: you gotta be tough!
My honest advice for you to keep cool is this: practice any sport, stay with your family, do the things you enjoy the most. You don’t need hours in front of the screen, worrying about the stocks. Just like I said before, no investment should keep you awake at night or steal your precious time during the day. Go out and live your life.
Look at these numbers of 2008-2009 crisis period, compared with the current situation:
BlackRock:
| year | net income (US$ millions) | year closing price |
|---|---|---|
| 2006 | 323 | 151.90 |
| 2007 | 993 | 216.80 |
| 2008 | 784 | 134.15 |
| 2009 | 875 | 232.20 |
| (...) | (...) | (...) |
| 2018 | 4,305 | 392.82 |
LRCX - Lam Research Corp
| year | net income (US$ millions) | year closing price |
|---|---|---|
| 2007 | 686 | 43.23 |
| 2008 | 439 | 21.28 |
| 2009 | -302 | 39.21 |
| 2010 | 347 | 51.78 |
| (...) | (...) | (...) |
| 2019 | 2,191 | 292.40 |
UnitedHealth Group
| year | net income (US$ millions) | year closing price |
|---|---|---|
| 2007 | 4,654 | 58.20 |
| 2008 | 2,977 | 26.60 |
| 2009 | 3,822 | 30.48 |
| 2010 | 4,634 | 36.11 |
| (...) | (...) | (...) |
| 2018 | 11,986 | 249.12 |
As you can see, companies with consistent profits are more likely to handle the punches during crisis periods.
Summing up a smooth, stress-free stocks investment strategy:
1) focus on net income;
2) diversification;
3) keep cool on crisis.
Submitted March 04, 2020 at 08:00PM by _allthatjazz https://ift.tt/2x6wa77
