Category Archives: Stock Selection
Emotion and the .coms – Investing Mistakes to Avoid
People no longer fear public speaking more than death – they fear running out of money prior to death. When the stock market soars as it did in the late 1990’s, people become greedy. On December 9, 1999, VA Linux, a company that produced a new operating system that was offered within Intel hardware, went public at $30/share. Normally, underwriters create lots of hype around new companies in order to help raise more capital in the offering, which enables them to take a larger fee. In this case, the underwriter and selling group did not have to do very much to create a sizzling story to complete a solid capital raise for the company, because many techies felt that a company like VA Linux could replace the successful Microsoft Windows Operating System. Who doesn’t love a David versus Goliath story? We all want to believe.
What I remember most about that crazy day as a Manager on the Charles Schwab trading desk, was the female customer who berated one of my senior level employees because he would not accept a market order to buy 1,000 shares in her Individual Retirement Account. When an Initial Public Offering initiates trading, excess buy orders and virtually no sellers can cause the price to skyrocket. Reporting of executed trade prices becomes delayed in a high-volume stock, so real-time price executions can vary dramatically from recently reported prices. Per IRS rules, individuals can only make limited contributions into retirement accounts. The Schwab customer had more than the $30,000 in her IRA to cover a purchase for 1,000 shares at $30, but if the stock commenced trading at a much higher price per share, she would be unable to pay for the stock. The telephone call was escalated to me and I was shocked by how frenzied this customer had become. I was used to talking with people who were upset and very emotional, but I never imagined someone could become as frenzied as this customer. She refused to even consider placing a limit order because she wanted that stock no matter what the cost. She was wrought with greed and anger, and I would not accept her instructions to buy the stock in her IRA without a limit price, which made it even worse. She hung up on me after issuing several angry threats. The stock soared to $320, and ended the trading day at a close of $250/share. If we had accepted her instructions and submitted a trade and bought the stock at the high of $320/share, the trade would have cost her $320,000. Even if she could have raised the funds to pay for the trade in a regular brokerage account, she would have lost as much as $70,000 by the end of the day. After a 1:10 reverse stock split last year, the 1,000 shares from 1999 today would be worth about $1,600. If she held it for the past 12 years, she would have lost as much as $318,400. Many investors hold onto their bad decisions and ride them down thinking that they will come back. Denial of a bad decision only exacerbates losses. But I digress, the point is that emotionally charged investment decisions rarely pay off. I think of that customer from time to time, and wonder if she ever thinks of me.
© 2012 Pawleys Investment Advisors, LLC. All rights reserved.
Gorilla Glass, the Dreamliner and America’s best kept economic secret
Published on MarketWatch.com
November 11, 2011
Gorilla Glass, the Dreamliner and America’s best kept economic secret –by Kathryn Schwartz
Many investors have exited the equity markets and sit trembling on the sidelines. Since June 1, investors redeemed over $155 billion from long term equity funds. Those sitting in cash earning no interest truly believe the American economy is doomed. Let’s look back in time to see where the future might lead us before fear causes investors to miss out. Imagine a world without telephones or airplanes. It is hard to believe that it has been just over 100 years since both were invented, in Massachusetts and North Carolina respectively. Just a century ago, the world functioned without phones or planes. With the recent passing of Steve Jobs, there is more buzz about creativity and invention. Will innovation catalyze the next economic boom in America and take the equity markets higher?
Phones have come a long way since 1876. Gorilla Glass, the thin, lightweight glass that resists scratches and damage and is produced by Corning (symbol: GLW) for use in Smartphones, has a popular allure. The attention comes not from the technology of photovoltaic glass, but from the discussion of its use in Apple’s iPhone (Apple does not disclose the identity of many suppliers). But more interestingly perhaps, is the story about potential application of Gorilla Glass technology in generating solar power. Last year, Apple was granted the first ever patent for solar powered portable devices. The elimination of the need for different phone chargers would no doubt be a game-changer. But imagine a house with a roof comprised of glass sheets less that 1mm thick that can withstand hurricane-force winds and severe hail, and collect enough energy to run the entire home! These Corning panels are currently in testing.
Planes have come a long way since 1903. In 2009, Boeing (symbol: BA) selected North Charleston, South Carolina for final assembly and delivery of its 787 Dreamliner. As a result, a contentious labor dispute has boiled up from the Washington state-based aerospace union. The cloud of the dispute blurs the view of the new plane’s ground-breaking technology. Planes have been constructed using composite materials for decades, but the Dreamliner is constructed of about 50% carbon fiber, reinforced plastic and other materials. The carbon fiber body is not only lighter, but stronger. The Dreamliner is billed as the world’s most fuel efficient airplane, consuming 20% less fuel, and offers a 30% reduction in maintenance costs compared to similar sized aluminum body planes. The fuselage is assembled in composite barrel sections, eliminating multiple aluminum sheets and as many as 50,000 fasteners used on traditional aircraft. Updated engines manufactured by General Electric and Rolls Royce are also used on the plane, and Boeing cites the new engines as the largest contributor to the improved fuel efficiency. The interior is state of the art and offers extra humidity for the comfort of passengers. And perhaps the most anticipated enhancement of all – cupholders – not just one, but two, at each seat. Boeing announced just last week that it will lease space previously used to house NASA space shuttles in Florida to build next-generation spacecrafts. The future is right around the corner!
In 1977, as a result of his dedication and hard work, my father was promoted to the newly created position of Manager of Quality at Corning. Well before, Japanese companies had built a culture focused on quality and process improvement, and they were eating our lunch. The late 1970’s represented a refocusing of American companies on quality, and this laid the groundwork for one of the largest and longest economic boom cycles in U.S. history. Companies such and Corning and Boeing, who focus not just on creativity but also on delivering the highest level of quality, have been able to develop amazing products such as Gorilla Glass and the 787 Dreamliner. The secret is not so secret. It is the focus on quality, the hard work, and the unbridled spirit of America that will create the innovations that will catalyze our next economic boom. And in the meantime, investors can collect dividends of 2.1% and 2.6% respectively on GLW and BA, which certainly beats the bank.
The author and family members hold shares of GLW and BA. Pawleys Investment Advisors is a Registered Investment Advisory Company based in South Carolina. Future investment results cannot be guaranteed. Please check with your advisor to see if these stocks are appropriate for your situation.
Sources: www.ici.org, www.Corning.com , www.Boeing.com
© 2011 Pawleys Investment Advisors, LLC. All rights reserved.
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