Spring Break Extra - Greybeard University

All the kiddies are out on spring break. You can always tell because the bars are empty, the planes are full, credit-card issuing bank stocks are up, and the additional weight of fresh new debt tilts the party barge to one side so that the increasingly overweight co-eds slide across the deck on their pasty, thong split asses.

With the co-ed age leaches out of the house, next door apartment or vomit covered gutter, take this opportunity to take a quick look at the plans that all of you loyal readers have been making regarding your investment/retirement accounts. In previous posts, we danced around growth versus equity, and, if you were paying attention, established that you are gonna be your own gate-keeper for your money.

Where in the world, you ask, can we find some place that is worthy of guiding the newbie investor in each one of us? Here is the profile... we ain't talking about day trading here, nor are we talking about timing, metrix, forex, or any other get-rich-quick type of voodoo. If you are so inclined to this kind of investment, I suggest this resource... For the rest of us, we can tolerate a trading station that does not execute trades faster than I can drink two fingers of scotch at work. Some of us, like me, don't have a lot to work with so we need also need a table with a small buy-in. That means that account minimums gotta be reasonable, and per-trade-fees have got to be as equally reasonable. For you and me, all we really need is some thing like Sharebuilder, or the new $7 per trade that Bank of America offers. Despite my unsolicited dislike for banks, B of A also has a program that automatically transfers your "pocket change" from your checking to your savings account each day, a concept fully endorsed by the facutly of good ol' Greybeard U.

How then, do we play our short stack of chips so that we have enough chips to go slip toes in the hot sands with all the college refuse now south of the border? If you have been paying attention, you know that a portion of your portfolio needs to be stocks you know because they are products you use/ or an industry that you know. These are the stocks that Google sends you an alert on, you read the SEC filings on a regular basis, and the CEO has you on the speed dial (or has requested a temporary restraining order so that you leave him or her alone).

The next significant portion of the portfolio is gonna be split, at some percentage between growth and income. For the young, reckless and indestructible, the percentage of growth stock is probably going to be much higher than the old and broke down set like greybeard. At least, that is the conventional wisdom, and I don't know that conventional carries the day today.

Growth is like an addiction. You get a little, you want more. Soon, you gotta have more and more just to get the same rush. Growth stockers have lots of GM shares they are shedding. Growth stockers were orgasmic over Enron, right up to the very end. The latest messiahs for growth have been the pencil-neck geeks at Google. The problem is that the institutional investors who make their money taking risks with other people's money expect more and more growth, and they don't give a damn how it is accomplished.

Growth stockers are easily bored, so they play this little game each quarter, where the target company provides estimates about growth, income, revenue, the number of import banana-yellow thongs that will be purchased...whatever. The stockers, not complacent with watching the game, have their own quarterly forecasters, the "analysts". Anaylsts are the "they", the "them", the nebulous of collective wisdom that the rest of us refer to prove an unfounded point, such as "They say that Bill Gates is giving away $500 if you forward this email I keep hearing about," or "Google stock is good enough for them." "They" play a game each quarter that has profound impact on Mom and Pop SixPack's retirement fund.

Last month, Google stock took a huge hit in value, meaning it's share price decreased. Google didn't lose money last quarter, they aren't getting sued because their latest drug made Thalidmide babies look like Olympic swimmers, nor have they profitted from no-bid government food service contracts that starve our service men and women. No, last quarter Google made money, they just didn't make as much money, AT THE GROWTH RATE THAT THE ANALYSTS GUESSED THEY SHOULD! In their defense, Google released a press release explaining that the "organic growth" rate was probably at its peak.

Beloved, note two things here. When Google launched its now historic IPO, part of the manifesto from the math geeks suggested that they weren't going to play the forecast games that other companies in the past, notably Enron, had used to drive the short-term implementation of the company business plan. Problem is, even if the target company wont paint a big red cross hair on its ass every quarter, the analysts do it anyway. What this means for you and me is, the value of a huge company is being driven by the wild-ass guess of a bunch of pencil pushers in NYC. If a company grows 25% in one quarter, but the wise ass analysts say that growth should have been 35%, the value will drop overnight by 30%... just like Google.

The second thing you should note... when corporations start using language that would make the White House Press Office swell with pride, terms like "organic growth", it is time to place your bets elsewhere.

Growth investing, over the long term, has been profitable for two generations. Growth investing on the short term, betting on sustained, meteoric growth seems to be new phenomenon. If you are gonna heavily invest in growth stocks, know that which you put your chips into.

Income stocks are ugly, boorish, and not much fun to discuss around the beer-bong. Rather than focus on growth in terms of the stock price, income stocks look to pay a dividend to share holders. As a result, income stocks tend to be represented by more consistent and predictable approaches to core business. This means that it is, or should be, easier for the great unwashed such as you and I to track what they are up to. The beauty about income stocks, especially in programs such as Sharebuilder, is that the dividends can be automatically reinvested, so that you don't feel like you have a few bucks sitting around burning a hole in your pocket. Think of it as a savings account that builds equity.

Here is a good starting point to see what makes an income stock a good income stock...

While you discuss amongst yourselves, Spring Break is almost over, so I gotta run a few hundred more miles, shed that winter weight, decide between the Triumph of my dreams, jump on the Von Dutch anti-marketing anti- rebel rebel image, stick with the sentimental favorite, build my own, or strike out in new patriotic directions with the Victory motorcycle. [I know, I know. Victory is owned by Polaris, and Polaris is a division of Bombardier, a Canadian interest, but every year or so, I apply for an in-house counsel job with Bombardier, so blow me.] The end of spring break means the return of the co-eds, and mini-skirts will rise just as surely as gas prices; neck lines will plunge like GM revenue. With a good raise, I am even gonna get a custom painted helmet, a pin-up girl on the side, and on the back in blood-red razor blade tattoo paint... Formerly Living.