Dissecting Future Earnings Potential

                     Dissecting Future Earnings Potential

       Determining the future earnings of Apple and Diageo corporations and the likelihood of their earnings coming from their current product line. When investing in companies it is extremely important to look at their product line and to look ten years into the future and see if the particular company will be able to derive earnings from their various products.

                               

        When I look at Apple corporations product line right now I see the Ipad and Iphone. The Ipad and Iphone are extraordinary  products that produce amazing earnings, but will Apple be producing these products for amazing earnings ten years from now?   I cannot answer that question with certainty.   Does the Blackberry ring a bell to anybody and look what has happened to that product darling of yester years. The question at hand is will Apple be able to innovate their current product line and produce a new product line to match their current earnings ten years in the future?Investing in Apple is investing in Apple's ability to innovate amazing products over and over. I'm not staying Apple isn't a great company, but what I'm saying is will Apple be able to sell 33 million Iphones and 14 million Ipads a year?

        Now, when I look at Diageo corporations product lines right now I see Johnnie Walker Scotch, Captain Morgans Rum, Red Stripe Lager, Ketel One Vodka, Gordons Gin, Smirnoff Vodka, Baileys Irish Cream liqueur and etc... I believe, these products will stand the tests of time and provide steady streams of income with predictability. Johnnie Walker Scotch has been selling scotches since 1870.
With Diageo's product line producing steady earnings for years to come, then one can make a long term investment with the safety in earnings.

                                                  When to Sell

 

When does an individual sell a stock  for a profit or a loss?

 

 

Selling for a Profit:      



An old adage on Wall Street is that no one goes broke selling for a profit. Historically speaking the stock market in the United States has returned an average of 10.4% from 1900 to 2000. Individuals should never be out of the market totally. Because their is no one in the world who can successfully call the top or bottom of the market. When markets are selling at premiums you want to sell into the greed of other investors. When an individual is selling a stock, mutual fund or index etc... one has to look at the specific investment at hand and determine if the investment is selling at a premium. If a investment is selling at a premium the investor should consider selling a percentage or all of a investment. Also the investors risk tolerance has to be accounted for and the volatility of the investment.  Volatility is the measure of price variation. The more volatile the stock the higher the variation in stock price  (Coca Cola's stock is less volatile then Tesla's stock).  Another key factor to consider is that Coca Cola pays a quarterly dividend. According to Warren Buffet you buy great companies at great prices and you sit on your hands. And remember cash is king in economic downturns.

 

 

 

Selling for a Loss:

Warren Buffet has two rules: 1. never lose money 2. never forget the first rule.  Investors don't invest to lose money, but when an investment is occurring loses the investor has to make tough decisions on selling or holding tight.  Investors spend 90 percent of their time looking for investments to buy and 10 percent deciding when to sell investments. When an investment keeps losing money and the  management of the company continues to make bad decisions then it is time to sell.

 

Be greedy when others are fearful and be fearful when others are greedy.

 

The most important aspect to investing is knowing when to buy, sell, and when to sit on your hands.  The above quotation sums up my investing philosophy and is known as value investing. Value investors actively seek stocks of companies that they believe the market has undervalued and are selling below their intrinsic value.  Intrinsic value of a stock is the actual value of a stock, as opposed to its market price. In many cases in the past investors sell shares of stocks in a panic because of the fear of the loss of wealth. Prime examples would be in 2009 when the financial crisis was in full swing and in the dot.com bubble of 2001. During these times stocks are selling at extreme discounts and present investment opportunities of a lifetime. When shares of Coca Cola are being sold off as if no one in the world is going to buy a soda again, its time to start buying shares. An investment in Coca Cola during March of 2009 to present day would of resulted in a 100% return or a 20% return a year excluding dividends. Dividends are a payment made by a corporation to its shareholders on a given date in the future.  Also keep in mind Coca Cola pays a dividend and has paid  uninterrupted dividends on its common stock since 1893. No one can pick the bottom of the stock market, but investing in a stock such as Coca Cola allows one to collect a dividend payment and wait for the market and price of Coca Cola to correct.

Next Week: When to sell and build a cash position.

 

Letters Objective

     With corporate America pushing the responsibility for financial security back to individuals, people are being faced with the daunting task of managing and planning for their own retirement savings. As well as the responsibility for saving an paying for their children's college. My monthly letter aims to help individuals achieve financial success through insightful investment prowess and ultimately financial freedom. <a href="http://www.bloglovin.com/blog/11610309/?claim=syxcz4pbnpx">Follow my blog with Bloglovin</a>
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