As the stock markets plunged last Thursday around the globe, there was this incredible pall over anyone who had a smidgen or more of common shares/stocks. I could hear the snickers of some readers who recently felt my comments on “renting vs. owning a home” gloating that being invested in house, apartment or land was indeed better and this incredible storm hitting equity markets was their proof positive of financial instruments vs. land and buildings. Well, I am glad to say, we haven’t held stocks of any significance (less than 1% of total porfolio) for more than 18+ months, and the recent drop in the stock markets hit us only peripherally, in that bonds and other financial instruments took a relatively sympathetic beating. But there are a few points about the current crisis I would like to point out:
1. The base cause of the current credit crisis? Tens or hundreds of thousands of folks (mostly in America in this case) that borrowed “cheap money” against the rising values of their homes and who spent that money on unproductive items. In other words, profligate spending. And using mortgages and credit card borrowings to finance it. Basic, irresponsible personal financial behavior. Spending more than they could afford. Collectively, they made up the crux of the problem. And as they could no longer pay off their debts, and home prices came crashing down, they collectively formed the underlying reason for the current credit crisis…
2. Also to blame, were the banks and investment banks that encouraged this type of spending and lending. Who developed the products and marketed them. Who made money and capital so freely available to folks who weren’t using it effectively. And yes, it two took to tango. The folks borrowing the funds and the ones who just kept supplying it, while paying themselves incredible salaries and bonuses as profits seemed to skyrocket to the heavens.
3. The press is being a bit histrionic about the events, in my opinion. “The End to Capitalism” some suggest, the 1929 Stock Crash followed by the “Great Depression on the Horizon ,” say others. Worse, photos on front pages of people making motions to slit their throats and shoot themselves. If anything, such press coverage has heightened the fear and caused some of the panic. And made the volatile swings of the market even more acute.
So what is the point of this post? At the height of the plunge last week in New York, on Friday evening, Manila time, I took a wild guess that matters had possibly bottomed out, and I took the incredible opportunity to educate The Teen about the stock markets. She had been asking about them for a couple of years and I had promised her that we would “play a game” with the intent of teaching her some of the basics of investing in company stocks. So while everyone was freaking out about the decline of their portfolios, we decided it was time to buy. At 7-8pm last Friday Manila time, or just before the New York markets opened, we gathered in our den and picked out 10 stocks that we would “buy” in a “hypothetical” portfolio (5 for MM, 5 for Mrs. MM and The Teen) and we would track over the next couple of years so that The Teen could see how this works. We would buy $20,000 worth of each stock for a total of $200,000 invested in the stock market. Boy, do I regret keeping this activity hypothetical…
First, we went through the basics of a stock, then I picked five stocks and “purchased” them either at their closing price on Thursday NY time or during the morning plunge on Friday, New York time… these were my stock picks and common person’s rationale for each:
1. Apple Computers – I use an Apple laptop and desktop, I have an ipod, an itouch and we buy music from Apple. Purchased 227 shares at $88 each for $20,000.
2. Coca Cola – I drink Diet Coke like water, and I think stressed folks all around the planet who can’t afford starbucks will settle for a Coke. Purchased 555 shares at $36 each for $20,000.
3. Goldman Sachs – A firm I would have given a minor body part to join when I graduated from Business school and while I made final round interviews, they didn’t make me an offer. I think Warren Buffet buying into them is as good a sign as any that I should too. Purchased 222 shares at $90 each for $20,000.
4. Boeing – Seems like a dumb idea to buy a plane manufacturing company when world travel could slow dramatically… but I love 747’s and think they were one of last centuries greatest inventions and there aren’t many airplane companies left, so this is an investment in MANUFACTURED goods. Bought 476 shares at $42 for $20,000.
5. CVS Drugstores – Drugs, need I say more? Bought 658 shares at $30.40 for $20,000.
After some discussion, Mrs. MM and The Teen picked:
1. General Electric – For all the appliances and other good things they bring to life. :) Bought 1,052 shares at $19 for $20,000.
2. PLDT – Listed in NY but based on Philippine telecommunications revenues. Bought 416 shares at $48 for $20,000.
3. Amazon – The Teen reasoned that with hard times, more would order stuff on-line rather than drive to the mall… Bought 357 shares at $56 for $20,000.
4. Hershey’s – Chocolate, need I say more? Bought 574 shares at $34.85 for $20,000
5. Microsoft – Another technology pick, as Mrs. MM is still on a PC. Bought 909 shares at $22 for $20,000.
I post this so that we can all follow the progress of this stock portfolio together. Updates every few weeks or every month, depending on volatility. I will do a follow up post to this later, however, as Friday appears to have been indeed a bottom from which we have bounced nicely for now…