Sunday, May 11, 2014

Understanding Expectations and Making some McProfits

Understanding Expectations


Managing expectations is very important if you want to become a great investor. Most people want to hit the home run or the big jack pot. This mentality leads to risky decisions which end up actually losing money. Grinding out a small win or collecting a few dollars consistently with dividends is boring but the best way to make money over the long run. Many people want to see things happen right away and don't have the patience to let things develop they jump in and out of stocks or companies. What I have learned is people love to watch stock prices instead of understanding how the business is run and growing. If you develop a thesis let it play out most people have a thesis which is correct but don't let it play out and miss out on the profits. Not every drop in the price of a stock is a bad thing. Maybe it is for fundamental reasons or it could just be profit taking or even reasons that make no sense giving a intelligent investor the opportunity to buy. Just because a stock falls is not a good reason to sell if a stock rises does not mean a good reason to buy unless you feel the company will continue its success. When Warren Buffett bought $1 billion in The Coca Cola company in 1988 and 1989 he did so even after the company had risen fivefold the prior six years and 500 fold the previous sixty years (source is The Warren Buffett Way by Robert G Hagstorm.) Below is an example of a company I own which has been consistent money maker. 

McProfits


McDonalds has been in my portfolio since I first started this blog and my channel and it was bought at $89 and as high as $98 and low as $86. I have bought it even after it pretty much doubled from the 2008 bottom. This is the perfect example of understanding a company and not putting to much concern in a monthly or quarterly number that misses expectations. I am happy with the yield on cost and the dividend growth this company provides. The value and growth are from operations and the movement into coffee which I feel has many years of growth. The stock price is currently at $102.93. Many stocks may have outperformed MCD but the risk of being invested in MCD is low and overtime a great company will have returns that will usually outperform the averages. Its best to buy great companies at good prices I think MCD is fairly valued any pull back would present an opportunity for someone who has no shares but over the long term you can't go wrong with a company as innovative as MCD. It doesn't hurt to get a 3.1% yield while you wait. This is my example of managing expectations and being rewarded for having patience.

Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.

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