Wednesday, January 16, 2013

Letting Go of a Stock You Love

One of the hardest things in investing is knowing when to walk away.  Especially when you're making money. Remember, a gain isn't a gain til you cash out. What was worth $50 yesterday can be worth $.50 today. I'm wrestling with this because my biggest and best performing stock has been getting trashed for about 6 months now. Apple once hit $700/share and is now around $500/share.  My purchase prices range from $100 to $385 so I'm still up, just not as up as I was a few months ago.

Why do I think Apple's been down when they're still selling iPhones, iPads, iPods & Macs like crazy?  Not to sound like a broken record, but a lot has to do with analyst's published expectations, which have been and continue to be all over the place. In addition, Steve Jobs has been gone over a year and no one believes Apple can still innovate. Apple has gotten trashed the last 2-3 days because someone reported that Apple reduced it's orders for replacement parts for the iPhone 5, and someone made the logical leap that this means the current "Jesus Phone" isn't selling as well as previous versions.  But at the end of the day, no one's opinion of Apple really matters but mine, since I'm the one holding the bag.

As I type this on my MacBook Pro and listen to BBC Business Daily on my iPhone, my perception of the company hasn't changed in any negative way in the last 20 years. I remember when the stock was selling at $4/share and everyone was just waiting for the doors to closed. I remember when people thought the company's name was really "Beleaguered Apple" because that's what it was called in every article written.  I remember when I had the pleasure to meet Steve Jobs at the Boston Macworld Expo on 1997.  I remember when Microsoft invested $150 million just to keep Apple on life support so the Department of Justice wouldn't call them a Monopoly.  I remember my SE/30, upgrading the chip in my PowerMac 7500 myself, Systems 7, 8 & 9, the clones, the first iMac, the switch to Intel. I remember my user group and trying to tell my Windows-using family and friends that the Mac was a better machine. And I remember then politely tolerating me.

My point is, there are very few people who have loved a company more than I have loved Apple over the years. And Apple has loved me, not just with great products, but with a great return in the stock price.  But what trumps all this love is the fact that my goal for buying Apple stock was not to show them  love or to get the annual report. My goal for buying Apple and every stock I've owned is to get a return. To make money.  Unemotional money. Period.  To do so, the stock has to rise. And it has.  But I cannot forget that the most important factor in the continued rise of the stock is OTHER PEOPLE'S PERCEPTIONS of the future of the company. And people are not logical.  And they have short memories.

Blah, blah, blah.

Here's the bottom line. While I still love Apple, I don't think it's stock will rise over the next few months as high as some other stocks I may be able to find. I'm not saying it won't rise, I'm saying from a pure percent increase perspective, there may be better opportunities out there. At least right now.  I'm not going to sell it all, because it just might rise and I want to be in on that.  But I am going to take some money off the table.

Tuesday, January 15, 2013

Dollar a Week Challenge And Save $1,378

I can't take credit for this, saw it on Facebook, but it's a pretty interesting idea. Every week for 1 year, put away a little money into a shoe box. The first week put away $1, the second week $2, the third week $3 and so on up to $52 in the last week of you. If you do this each week, you will have over $1,378 by the end of the year.  That's $1,378 that you probably wouldn't even notice until the end of the year.

What's the challenge?  Simple. First, you have to remember to do it every week. Sure, you could make it up if you miss a few weeks, but the real challenge is in training your mind to remember this every week and to make a deposit, every week. Second, financially it will be a whole lot easier in the first half of the year when you're putting away only a few dollars a week, but come October when you're putting a couple hundred dollars a month into the shoe box, you will probably notice it.

Maybe you don't need $1,378. But can you train yourself to remember to do it every week. That's the real challenge.

As of today it's going on the 3rd week of January. Want to start now? Put $3 (1+2) in your shoe box. See how long you can keep it up....

Monday, January 14, 2013

Companies Phoning It In - Krystal

For the 2nd time ever, I recently went to a Krystal fast food.  I had to do some digging, but Krystal is owned by Argonne Capital Group, which is HQ'd in Atlanta, although Krystal's headquarters remains in Tennessee.  Why do I say Krystal is phoning it in?  First, their drive thru menu is a hot funky mess.  Sure, people who frequent there will probably know the menu by heart, but if they do then they don't need a menu. Who needs the menu?  NEW CUSTOMERS!

Ok, why is it a mess?
First, it's way too busy. It's like the person who built it played a lot of Tetris.
Second, it's trying way to hard (and too obvious) to steer you towards the combo meals.  All I wanted was a single burger and it wasn't listed. But every combo meal you can imagine was listed. I had to ask how much was a Krystal burger ($.79 in case you're wondering).  I consider myself to be reasonably intelligent, so I can imagine more than a few potential customers have given up and pulled off.  When I got to the drive thru window I commented on the mess of a menu. The response I got was "I agree, that's why I go to McDonalds."  Not oh snap. Double oh snap.

You might ask, how can I evaluate a whole chain based on one visit to one location?  Simple, and I'm going to make a few assumptions....

  • The drive thru menu was not designed by the location I went to. Any company worth more than $20 would have menus at all locations consistent, so the menu board is the same at every, if not most of their locations. Someone in the corporate office signed off on this box of 64 Crayola Crayons. I think it is blatantly designed to push you towards buying combo meals. Did it even go through consumer testing?  
  • The location is within 50 miles of Atlanta, where the parent company is headquartered.  If you let a location this close to the mother ship go, I can only imagine what more remote locations are like. Again, one of the employees felt no concern in referring a competitor. That says to me that there is no consistent hidden shopper program to assess quality. If there where, this employee would never have said that to a customer.

For most of my analysis, I consider 2 corporate models : Apple and Bradlees.  Why? Apple is doing it right, at every Apple Store, every minute of the day. Bradlees, before it closed down, was a perfect example of employees going through the motions (at half speed) and a corporation just trying to hang on long enough the distribute senior exec bonuses.

Avis used to have a slogan "We're #2, we try harder." I don't know where Krystal falls (not in the top 10) but I don't think their trying harder. They exchanged owners last year, so it might be that they are in the process of a massive redesign. The scary part is the current image was most likely part of some massive redesign.

As for an investment opportunity, Krystal is not publicly traded so even if I wanted to invest I could not. Why even write about it? Because the problems it has are not problems that would only be seen in a privately held company.  Sears (full disclosure, I used to work there) (SHLD) was $200 a share a few years ago, it's now $44. Have you been in a Kmart lately? Yeah, exactly.  I digress.
My point is if you consider investing in a company, one thing you need to consider is the customer experience.  When companies stop caring about what the customers experience, they've taken their eye off the ball. But I would imagine the corporate bonus structure is probably still intact.

Oh yeah, the burger was pretty good.

Friday, January 11, 2013

The Cost of Money

Because of the recession (and maybe even a layoff) there are a lot of people who find themselves in a lot of credit card debt, and trying to increase their savings.  How do you decide what should take priority?  Conventional wisdom with credit cards is that you pay off those with the highest interest rates first,  because they are carrying the highest cost of renting money (when I say renting money, understand that every time you use a credit card, not a debit card, you are renting money from the issuer of that card.  The interest rate is their charge for that money rental.), but you should also consider what return you can get on savings. It may be better to not try to save so much when the return is minor (around 2% in savings accounts) and you are borrowing at 19% or 29%.

For example, if you have a credit card balance of $5,000 at 29.9%, if you make the minimum payment it will take you 29 years and cost you over $18,000 in interest alone. If you have $5,000 in your savings account, you might be tempted to leave it there to collect interest. But unless you've found that unique bank that pays interest of 30%, you will lose a whole lot more than you gain by paying the minimum. By making the minimum payment you suffer "death by a thousand cuts". Each month over 80% of the minimum payment goes toward interest.  Read that again. The lender takes their cut first. Then pays off some of your balance.

The bottom line is this: If you can't lend money (invest) at a higher return than you can borrow it, then pay off your debts first.