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Old 02-14-2013, 09:28 AM  
Rain Man Rain Man is offline
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A little thank you to Warren Buffet

On December 21st I was looking for a stock to buy with some extra cash, and I liked Heinz, the ketchup company. It's pretty stable and pays a nice dividend, and I've really liked dividend stocks the past few years. So I bought $5,000 worth. It's gone up a couple of percent over the last couple of months, and I've been good with that since that's a very good annualized return so far.

Today it was announced the Berkshire Hathaway is buying Heinz. The stock is up 20% today. Blammo. I sold out my initial $5,000 worth, left the profit in, and I now have $1,200 of free Heinz ketchup stock for two months of investment.

God, I love America.
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Old 02-14-2013, 10:38 AM   #16
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I know, sometimes I just want to get aggressive and find that lucky stock. Maybe it doesn't exist right now.

It does exist right now. The problem is that neither you nor I are very likely to be the ones to find it. :-/
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Old 02-14-2013, 10:41 AM   #17
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I would stay away from Geno's stock. That shit is going to go down like a East Buch freshman.
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Old 02-14-2013, 10:46 AM   #18
Amnorix Amnorix is offline
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Originally Posted by Rain Man View Post
Blammo. I sold out my initial $5,000 worth, left the profit in, and I now have $1,200 of free Heinz ketchup stock for two months of investment.
Why leave the $1,200 at risk chasing the last few pennies on the spread between the current price and the purchase price? If the deal tanks for any reason at all, your $1,200 is going to evaporate fast.

The only guys left in the game at this point should be the arbitrageurs. You're basically betting $1,200 to make, what? About a buck? Current stock price is $72.49 and Buffet's purchase price is $72.50 and you own like 80 shares if my math adds up.

If you have to pay separate transaction costs for each sale then you're really being silly.

IMHO, next time, take the money and run Lebowski.


EDIT: Sorry, don't mean to be Debbie Downer -- congrats! It's certainly a very sweet moment of victory.
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Old 02-14-2013, 10:48 AM   #19
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Okay, I got my $5,000 back and I just put $2,000 into Carnival Cruise stock. It's down 5% in two days, and all they have to do is fix the engine and hose the ship down. I bought a smidgen of Carnival stock last year after that ship tipped over in Italy, and have made 33% on it in 13 months.
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Old 02-14-2013, 10:56 AM   #20
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Quote:
Originally Posted by Amnorix View Post
Why leave the $1,200 at risk chasing the last few pennies on the spread between the current price and the purchase price? If the deal tanks for any reason at all, your $1,200 is going to evaporate fast.

The only guys left in the game at this point should be the arbitrageurs. You're basically betting $1,200 to make, what? About a buck? Current stock price is $72.49 and Buffet's purchase price is $72.50 and you own like 80 shares if my math adds up.

If you have to pay separate transaction costs for each sale then you're really being silly.

IMHO, next time, take the money and run Lebowski.


EDIT: Sorry, don't mean to be Debbie Downer -- congrats! It's certainly a very sweet moment of victory.
I'm going to explain, and you'll likely laugh at me.

In 1991 and 1992, I bought Dell stock twice when it was a very young company. I was living in Austin at the time, and it wasn't a lot of money, but I was a poor grad student. Both times, I doubled my money, sold out, and thought I was a genius. However, if I hadn't sold, that $4,000 in stock would've been worth $250,000 by the end of the 90s. I was standing in the middle of a gold mine, and I walked out. It. Kills. Me.

So now I have a strategy, and I stick to it religiously. I buy stock in lumps of $4,000 or $5,000. When I get to the point where I've made 20%, I sell out my original share and leave the profit in. That way, if the stock goes down I haven't lost any of my principal, and if the stock goes all Dell I'll still get the upside, albeit in a smaller dose. But I won't completely miss the boat.

I've been using this system for about 6 or 7 years now. The result is that I'm slowly building my own mutual fund of dividend-paying stocks with growth potential that I've hand-picked. It disseminates my risk but also gives me enough concentration that I have the potential to beat the market significantly.
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Old 02-14-2013, 10:58 AM   #21
rageeumr rageeumr is offline
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Originally Posted by ChiefButthurt View Post
I know, sometimes I just want to get aggressive and find that lucky stock. Maybe it doesn't exist right now.
Keep your eyes open, and try to stick to what you know. Buffet famously avoids most tech stocks (and subsequently avoided the dot-com bubble in the early 2000's) because he says he doesn't understand the companies well enough to invest in them. I work in construction, and the majority of my projects are in healthcare. I spend a decent amount of my time in hospitals and talking to hospital executives.

Back in 2009, I looked at all the mandates hospitals were facing (and incentives they were receiving) to go to electronic medical records and upgrade their information systems.

There just happens to be a local company (Cerner) that is in that market. Not only did it present a unique opportunity to root for a local company, I knew a few people who worked there and it seemed to be a very solidly run organization.

I bought about as much Cerner stock as I could afford at that time. As of today, it's up 167%.

That situation is unique in that it all lined up so nicely for me, but it's an example of understanding what you're buying. If you don't know the company, you're not really investing. You're gambling.
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Old 02-14-2013, 11:00 AM   #22
Amnorix Amnorix is offline
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Quote:
Originally Posted by Rain Man View Post
I'm going to explain, and you'll likely laugh at me.

In 1991 and 1992, I bought Dell stock twice when it was a very young company. I was living in Austin at the time, and it wasn't a lot of money, but I was a poor grad student at the time. Both times, I doubled my money, sold out, and thought I was a genius. However, if I hadn't sold, that $4,000 in stock would've been worth $250,000 by the end of the 90s. I was standing in the middle of a gold mine, and I walked out. It. Kills. Me.

So now I have a strategy, and I stick to it religiously. I buy stock in lumps of $4,000 or $5,000. When I get to the point where I've made 20%, I sell out my original share and leave the profit in. That way, if the stock goes down I haven't lost any of my principal, and if the stock goes all Dell I'll still get the upside, albeit in a smaller dose. But I won't completely miss the boat.

I've been using this system for about 6 or 7 years now. The result is that I'm slowly building my own mutual fund of dividend-paying stocks with growth potential that I've hand-picked. It disseminates my risk but also gives me enough concentration that I have the potential to beat the market significantly.
Your philosophy is perfectly fine and I don't laugh at you at all, but in cases like this you're basically risking $1,200 for no good reason at all.

There's precisely TWO things that can happen here with Heinz. ONLY TWO.

1. deal closes. You make a buck more than you would have if you'd sold now.

2. the deal doesn't close, and the stock tanks. That second part isn't speculation. If the deal doesn't close FOR ANY REASON the stock will tank.


Given that, you can buy the shares back cheaper if the deal doesn't close so you don't miss your Dell opportunity. Of course, Heinz is to young electronic growth stock what Cassel is to young growing quarterbacks, but I digress...

So yeah, I think you need a small carve-out from your normal rule, and you can even include the caveat that you will buy back in with profits if the deal tanks.
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Old 02-14-2013, 11:04 AM   #23
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Quote:
Originally Posted by Amnorix View Post
Your philosophy is perfectly fine and I don't laugh at you at all, but in cases like this you're basically risking $1,200 for no good reason at all.

There's precisely TWO things that can happen here with Heinz. ONLY TWO.

1. deal closes. You make a buck more than you would have if you'd sold now.

2. the deal doesn't close, and the stock tanks. That second part isn't speculation. If the deal doesn't close FOR ANY REASON the stock will tank.


Given that, you can buy the shares back cheaper if the deal doesn't close so you don't miss your Dell opportunity. Of course, Heinz is to young electronic growth stock what Cassel is to young growing quarterbacks, but I digress...

So yeah, I think you need a small carve-out from your normal rule, and you can even include the caveat that you will buy back in with profits if the deal tanks.
This is a good point. It's a very unusual situation to have a stock jump 20% in one day. I'm wavering. But I don't know, man. The key to having a system is to stick to the system.
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Old 02-14-2013, 11:06 AM   #24
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Old 02-14-2013, 11:08 AM   #25
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Old 02-14-2013, 11:09 AM   #26
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If Rain Man was a cat he would be this cat.

I aspire to be that cat. He looks like he's really got life under control.
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Old 02-14-2013, 11:11 AM   #27
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Old 02-14-2013, 11:15 AM   #28
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Only mustard, no ketchup
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Old 02-14-2013, 11:24 AM   #29
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Old 02-14-2013, 11:37 AM   #30
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