Wednesday, August 13, 2014

Q & A With New Investors - PCI Stock Blog Mail Bag

Dear PCI Stock Blog - I would like to hear your take on Tesla 

I love Tesla's product, the CEO is amazing, but the stock is out of my league. Essentially they make 1 model car right now. In essences, it's like buying stock in the Corvette and not all of GM. I think once Tesla introduces the Model X and other more affordable models they might make a more attractive investment because they are likely to experience some hiccups that might spook investors. Right now the stock's valuation is out of this world, and while it can certainly stay that high for long periods of time (like Amazon stock) .... personally I'd only be able to afford a small number of shares, so it doesn't make it worth it. Could I play the options market? Sure, but again, the stock has a cult like following that timing moves in the option market is risky. Tesla stock is well covered in the media so I will continue to follow Tesla (and I wish I could afford one of their cars), but for now I feel the stock has gotten ahead of actual performance & too risky for me to want to invest. 

PCI Stock Blog - Should I look to invest in (WSTI) World stream Technologies? They sent out a flier. Stock is at .69, is this a good stock or is it just all hype?

99% of the time it's a bad idea to invest in a stock where they need to solicit investors. Wall St. doesn't miss too many good stories, or hidden gems - so a company asking for people to invest is like the panhandler on the street corner. Also any company under $1.00 has some major issues considering the entire stock market has never been higher. In 2008, buying certain $1.00 stocks was arguably a good idea, but now I avoid it at almost all costs in 2014. Also, WSTI is traded on the OTC BB - which is essentially a place where companies that were once traded on NASDAQ or DOW go because they've been kicked out of the DOW/NASDAQ - likely because of not trading at over $1.00 and/or because they haven't reported necessary documents to SEC/Investors. Additionally, WSTI actually has a negative book value - meaning if they were to sell all assets of the company, they (shareholders) would actually owe money ($0.03 per share)

Using the same book-value metric on Tesla stock actually values the company at around $7.00 share: and shares are over $250 each! Shows you how that book value really doesn't mean too much, but when it's negative - that's a really bad sign. 

Good question though - I'm not trying to beat you down with my answer, just trying to show you the process you should develop when objectively analyzing a company. Because there are so many investments/stocks you can put your money into - develop a series of "red flags" and when a company breaks those rules - you avoid the investment. For me, sub $1.00 stocks and ones traded on OTC BB are a no no given the risk involved and given the majority of those investments go bankrupt. Additionally it saves me time - I didn't have to read WSTI balance sheet, listen to conference calls or read the financial blogs to form an opinion about the company. While they might end up being the next diamond in the rough .... mining for diamonds is hard work - I'd much rather park my money with a company that has proven itself to investors & more importantly to consumers. 

Hey PCI Stock Blog - What are the best investment magazines?

I actually don't subscribe to any magazines, but instead read mostly online these days. However I read the Wall St. Journal newspaper. I read some of Bloombergs publications. The Motley Fool has solid content and good podcasts. Power Trading Radio podcast is entertaining. I read lots of stuff on - but keep in mind nearly all the articles are biased because the author is trying to get the stock to go up/down. However, it can give you an idea why investors love or hate a particular stock and you can get a greater insight into the company by reading this. Lastly, the majority of what I read are documents that are released by the company to the SEC. Quarterly reports, annual reports and balance sheets often will say a lot about a company, but are often 200 page documents where only 3 or 4 sentences really matter. Digging through them takes some time, but is worth doing when you have a specific stock you want to invest in.

PCI - Are there any management firms better than the other ones (Scott trade vs Schwab)? 

E-Trade, TDAmeriTrade, Sharebuilder - or the two you mention. Sharebuilder is a discount broker I started with because they offer lower trading commissions, but with some restrictions on when you can trade. Schwab, TD, ScottTrade ...ect all have commission free ETF's and Mutual Funds you can invest in, so I tend to invest in those type of things because you're saving some money. Feel free to call each one on the phone & ask them any questions you have, the major brokers often have very nice customer service people.