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Investors May Be Doing The Wrong Thing (Again)

Summary In this article, I delve a little deeper into my recommended Model Stock Portfolio funds to try to get a fresh perspective that cannot be found elsewhere. The snapshot that emerges is intended to further help result-seeking investors judge what might be the best choices going forward within a group of already highly recommended funds. Investors often invest heavily in funds whose holdings are tilted toward previously strongly performing but overvalued stocks, rather than from those with a better chance of showing future strength. It should go without saying that no single or even multiple selection criteria hold the key to which funds you should hold on to and with what emphasis in your portfolio. However, in my Newsletters down through more than 15 years, I have tried to make the case that, while there are numerous good funds (or ETFs) to choose from, the best long-term results are more likely when, even within a list of highly rated funds, one focuses on those composed of stocks that are relatively more undervalued vs. those made up of stocks which have already been “discovered,” and therefore, likely have seen most of their potential run-up in prices already. Expressed a little differently, some funds may have achieved their recent success by their emphasis on holding a preponderance of already recognized “winning” stocks and stock categories and continuing to ride those winners. A simple example is funds that hold a relatively large proportion of what has proven to be an amazing stock, Apple (NASDAQ: AAPL ). The same may be said for funds that have a relatively high proportion of recently high-performing technology stocks as a group. Two such funds I have consistently recommended are the Vanguard Growth Index Fund (MUTF: VIGRX ) (or its equivalent ETF) and Fidelity Contra (MUTF: FCNTX ). The former currently holds 7.5% of the fund in Apple and 26% of the fund in Technology companies. The latter holds about 3.8% in Apple and 29% in technology stocks. Given the excellent performance over recent years of these fund components, the heavy weighting has given a boost to both these funds (and many other similarly categorized Large Growth funds), and been a contributing factor as to why these two funds have beaten the S&P 500 Index on average over many years. But another even more striking example can be cited: funds investing heavily in Health Care, such as PRIMECAP Odyssey Growth (MUTF: POGRX ), Vanguard Health Care (MUTF: VGHCX ) or Vanguard Health Care ETF (NYSEARCA: VHT ). Not surprisingly, the latter two highly narrow-focused funds have nearly all their investments in this one sector, a stock subclass that has on average returned over 20% annualized over the last five years. While, unfortunately, I have never included any of these funds in my Model Stock Portfolios, I have recommended at least one fund with greater than a 20% weighting in Health Care currently, namely T. Rowe Price Value Fund (MUTF: TRVLX ), This fund’s track record against its Large Cap Value category peers has been admirable over the last five years. Beyond this, though, is where things get very murky. As an investor, do you want to stick with funds that invest heavily in stocks and categories that have shown a lot of past momentum in the hopes that this outstanding performance will continue? Or, do you want, perhaps, to trim down your holdings of such funds, and instead for at least the next few years, favor funds more heavily invested in stocks and categories that may show even greater potential for success, namely those choosing the majority of their investments in potentially less overvalued segments of the market? Unfortunately, there is no clear-cut answer to this dilemma. Therefore, it is probably wisest to own funds weighted in both, that is, funds that invest heavily in stocks with strong current momentum, and, those that can potentially become better choices when the former momentum-driven stocks start to lose altitude. Unfortunately too, one of investors’ biggest downfalls happen when the winds of change periodically cause a big shift in the performance of previously winning stocks, categories, and the funds investing heavily in them. While we haven’t seen any such sort of massive shift going back perhaps to the 2007-09 financial crisis, or even before, we know that many investors tend to suffer when outsized bets on previous winners turn into outsized losses. While no one can say with any degree of certainty if and when the next reversal of fortune may befall the current crop of big winners in stocks, what follows is an analysis of which of my recently recommended funds are holding stocks perhaps overloaded with past winning, but now likely overvalued, categories of stocks. And, on the other side of the coin, can I identify which of my recommendations are more oriented toward current ownership in categories that seem to be less likely to underperform, when the next big shift in stock market winners and losers takes hold and impacts fund results for possibly years into the future? A Closer Look at My Model Stock Portfolio Funds In the first list of funds below, I analyze broadly diversified domestic stock funds recommended (or recently so) in my Model Stock Portfolio to examine the above issue. I also include some additional funds that I hold in my own personal investment portfolio. Funds more broadly classified as international stock or narrow-focused sector funds, however, are not included. For each listed fund, I have scored the fund on the extent to which it is currently (based on latest data available) invested in either what appear to be fairly priced categories of stocks, or on the other hand, seemingly overvalued categories, based on my own proprietary research. See the note at the bottom of the list for the meaning of scores. Each fund is listed in a descending order of score, starting with those least likely to be overvalued . Those with greater potential for coming out on top over the next 3 to 5 years, assuming my scoring method proves valid, are listed closer to the top; those that may be strong winners recently, but having a greater potential for underperformance when their current chosen and often overvalued stock selections lose momentum, are found further down the list. Note: If one compares the results shown in the list with the allocations shown in my Oct. ’15 Model Stock Portfolio , the results may not completely agree with the recommendations there because the listing below is based on different data. It should come as no surprise that all of the funds below, because they are diversified mixes of stocks, will have a moderate proportion of their investments in overpriced stock categories, given what we have previously labeled as an overall overvalued market. Therefore, inclusion in this list below in no way ensures that most or all of these funds will prove to be great investments over the next few years. But relatively speaking, we chose these funds, that is, those that are managed, aiming to beat market indices, or at least do well against their similarly classified peers. However, it is very possible, too, that perhaps some of the best investments for the next few years instead may turn out to be in funds that are invested internationally, as generally speaking, these fund categories seem to be relatively more undervalued than U.S. domestic funds are at the present time. Best Model Stock Portfolio Choices (from most highly rated* to less highly rated) Fund Name (Symbol) Score 3 Yr. Return (thru 10-27) (ann.) Category 1. T. Rowe Price Equity Income (MUTF: PRFDX ) 76% 10.6% Large Value 2. Vanguard US Value (MUTF: VUVLX ) 74% 16.5% Large Value 3. Fidelity Large Cap Stock (MUTF: FLCSX ) (tie) 70% 15.5% Large Blend 3. Vanguard Equity-Income (MUTF: VEIPX ) (tie) 70% 13.9% Large Value 3. Vanguard Small Cap Index (MUTF: NAESX ) (tie) 70% 14.7% Small Blend 6. Vanguard Extended Market Idx (MUTF: VEXMX ) 68% 15.0% Mid-Cap Blend 7. T. Rowe Price Value (tie) 65% 16.4% Large Value 7. Vanguard Mid Cap Index Adm (MUTF: VIMAX ) (tie) 65% 17.1% Mid-Cap Blend 9. Vanguard Small Cap Growth Index (MUTF: VISGX ) 64% 13.6% Small Growth 10. Vanguard Windsor II (MUTF: VWNFX ) 63% 13.4% Large Value 11. Vanguard 500 Index (MUTF: VFINX ) 62% 15.8% Large Blend 12. Fidelity Contrafund (tie) 58% 17.1% Large Growth 12. Vanguard Growth Index (tie) 58% 16.9% Large Growth 14. Fidelity Low-Priced Stock (MUTF: FLPSX ) 55% 15.2% Mid-Cap Value 15. AMG Yacktman Service (MUTF: YACKX ) 39% 11.7% Large Blend *Note: Top rating possible is 100%; lowest possible rating is 0%. A score of 70%, for example, means that 70% of the stocks in the fund are judged to be within a class of stocks that is fairly valued while 30% are within a category that my research indicates is overvalued. Of course, funds in the above list that are managed (that is, not index funds) will have the option of switching out of overvalued categories if it is decided to make such a switch. Index funds must stick to their mandated benchmark and typically will not change their composition unless the underlying index changes. Funds with the Most Investor Assets As a basis of comparison with the above funds and to see alternative funds chosen by investors that have currently attracted the most investor assets, it is also informative to look at similarly derived scores of the most popular funds using the same criteria to rate each in terms of my measure of fair vs. overvalued stock portfolio composition. (The first list also includes some of the biggest funds; it also includes a few that mirror some of the most important indices such as the S&P 500, so we won’t show funds that are identical or nearly so to those there. And, I again exclude international and sector funds.) Biggest Funds by Assets (from most highly rated* to less highly rated) Fund Name (Symbol) Score 3 Yr. Return (thru 10-27) (ann.) Category 1. Dodge & Cox Stock (MUTF: DODGX ) 71% 16.1% Large Value 2. Vanguard Value ETF (NYSEARCA: VTV ) 69% 15.0% Large Value 3. American Funds Washington Mutual A (MUTF: AWSHX ) 67% 14.4% Large Value 4. American Funds Invmt Co of Amer A (MUTF: AIVSX ) (tie) 64% 15.0% Large Blend 4. Vanguard Total Stock Mkt Idx Adm (MUTF: VTSAX ) (tie) 64% 15.8% Large Blend 6. American Funds Fundamental Inv A (MUTF: ANCFX ) (tie) 61% 15.3% Large Blend 6. American Funds AMCAP A (MUTF: AMCPX ) (tie) 61% 17.0% Large Growth 8. American Funds Growth Fund of Amer A (MUTF: AGTHX ) 54% 16.8% Large Growth 9. Fidelity Growth Company (MUTF: FDGRX ) 50% 19.6% Large Growth 10. T. Rowe Price Growth Stock (MUTF: PRGFX ) 48% 19.9% Large Growth *Note: See the Note under the first table. If you look carefully over these two lists, you will notice that the majority of funds with the highest, that is, best forward-looking scores, are categorized as Large Value funds. And, almost equally noticeable, most of the funds with a large percentage of already “discovered” stock categories, especially in the second list, are Large Growth funds. What this suggests is that the best opportunities for investors for the next several years would appear to lie in US stock funds that are classified as Large Value. Many Large Growth funds, if this analysis is valid, are likely to perform less strongly than Large Value funds because investors may have already realized most of the performance benefits of this category and are more likely to find both a greater degree of safety in Large Value funds when market conditions are no longer as bright, and a greater degree of return potential due to their less overvalued composition. While there is no way to know for sure how long the current “momentum bias” will continue, as it very well may, investors might always want to keep in mind that over long periods of time, the best way to make money in stocks is to establish and maintain your positions when prices are relatively low. It seems apparent, however, that looking at the second list featuring those funds investors have the most money invested in, they seem to be opting for many funds, including unmanaged index funds, with a relatively greater degree of already “stretched” types of stocks.

GLD: The Hurdles Still Remain

Summary We continue to have several things working against the gold sector at the moment. I have been selling more over the last week as this rally looked to be petering out somewhat, but I still have positions established in several gold and silver companies. If gold goes under $1,000 per ounce, then it will probably be the last time you will be able to buy it at that price ever again. The bearish hurdles that I talked about a few weeks ago in my last article on the SPDR Gold Trust ETF (NYSEARCA: GLD ) are still in place. In fact, they have become even larger since that time. We continue to have several things working against the sector at the moment. Those include the divergence between GLD and the gold stocks (HUI and XAU), the long-term downtrend that is still in place, tax loss selling into the year-end, and possible interest rate hikes at the December Fed meeting. The gold sector needs to overcome these before you can even start to talk about a new bull market. The latest sell-off in the precious metal sector began in early June, and since that time GLD has almost gotten back to even while the HUI is still showing a sizable loss. There have been many instances in the past when you suddenly get big divergences that occur in terms of where GLD/gold is priced at in relation to where the gold stocks are trading, and they usually don’t last long. At one point this month, the HUI was down about 35% while GLD was only down about 2.5%. That performance gap was extreme and it simply wasn’t going to be able to continue. Since that time, the HUI has outperformed, but it’s still lagging the price of gold by a fairly large margin. One of them is right though, and one of them is wrong. Either GLD reverses hard over the short-term, or the HUI makes some substantial gains during that time. ^HUI data by YCharts Given the price action in the HUI since the Fed meeting, one could argue that it’s the gold stocks that are correct. But it’s too soon to determine if this rally since the August lows is just a bear market bounce. Technically, the gold stocks appear to be breaking down, but I don’t like to rely on events that happen immediately after a Fed meeting, as the initial move isn’t always the correct one. Without question though, the long-term trend is still down. If the HUI can’t make a charge higher over the next several weeks, then investors will most likely start taking some tax losses in these gold stocks (if they haven’t already), as many have dropped substantially since the beginning of 2015. This will further fan the flames and we could get some major declines into the end of the year. I showed the YTD percentage loss for the following stocks in my previous article. Over the last few weeks, they have decreased even more, and the chart below reflects their current losses year to date. GG data by YCharts We also have the Fed and interest rates weighing on the gold market. Last time, I talked about how the Fed has been consistent with its message since 2012, in that the majority of members have been signaling for the last three years that they believe 2015 is when the first rate hike will occur. My argument remains that the Fed is going to lose credibility if it doesn’t raise rates this year. The weak jobs data in September had everybody believing that the Fed was on hold for the rest of 2015 and maybe well into 2016. As I said in my last update: I believe that rate hikes are still on the table, and this should be clear at the conclusion of the next Fed meeting in a few weeks. If this occurs, then gold could come under pressure again. Given the following statement out of the Federal Reserve, a 25 basis point increase at the December meeting is still a high probability event: In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Translation: baring a major decline in the U.S. and global stock markets between now and the end of the year, and assuming economic data doesn’t collapse, the Fed is most likely going to raise rates at the December meeting. GLD and the HUI could remain under pressure over the remainder of 2015, but I continue to believe this will be a “sell the rumor, buy the news” event, and gold will finally bottom soon after the first rate hike. It might not happen right away though, as there could be a slight lag. Contrary to popular belief, gold doesn’t perform poorly when rates increase. The last time the Fed embarked on a rate hike program was in 2004-2006, as the Fed Funds rate went from 1.00% to 5.25%. Gold went from just under $400 to… well, take your pick on which date and price you want to use. Clearly there was a huge bull market in gold occurring at the time. (SOURCE: FRED ) If you go back the the 1970’s, it was the same situation. And notice in both charts how gold increases immediately (or almost immediately) with the Fed Funds rate. In the chart above, gold was up about 20% in the 4-6 months that followed the first rate increase. (SOURCE: FRED ) There is one additional hurdle that the gold sector is facing at the moment, and that is the recent strength in the U.S. stock market. Anybody that has read my previous articles on GLD knows that I’m bearish on the U.S. indices. While I don’t expect a major collapse to occur, I do believe we could see a multi-year bear market with a 25-35% decline, or at best a sideways trading pattern. Stocks need to digest the massive gains that have been racked up since 2011. In other words, it’s time for a breather. But November and December are always strong months for stocks, and it seems like they are trying to have one last hurrah before finally giving way. You can see how GLD and the S&P have been trading inverse to one another over the last few weeks. Should the stock market continue to hold up, then gold wouldn’t have that firm bid underneath it as money would still be chasing these highflyers. Only when we see the S&P roll over we will see gold start to take flight. ^SPX data by YCharts My Updated Plan Of Action On October 16, in the comments section in my previous article on GLD, I told readers that I had started booking some profits in a few precious metal stocks. The reasoning was many of these were hitting their 200 day moving averages, so I thought it might be prudent to lighten up a bit. I have been holding many of these stocks since the August lows, as that is when I jumped back in. Some positions were established on the morning of October 2, as GLD had a huge move to the upside. I thought it might be wise to take some gains and see what happened over the next few weeks. My plan was to buy these positions back only if a breakout was confirmed. (Source: StockCharts.com) I have been selling more over the last week as this rally looked to be petering out somewhat, but I still have positions established in several gold and silver companies. I’m just going to hold these and see what develops. I have no desire to buy anything at the moment given the recent weakness, I would need to see some positive price action in the HUI first. Right now 104 and 130 are the two levels I’m paying attention to. Below 104 and it’s time to get very bearish, above 130 and the rally could go further and possibly develop into a bull market. As long as the HUI remains in the middle of those, then I’m just going take a wait and see approach. My Strategy With Timing This Gold Bottom I want to talk a little more about my strategy when it comes to the gold market and why I was buying in early August, even though I still believed there was more downside over the next several months. To me, this all comes down to the math and probabilities, and buying at that time was a win-win scenario. I had two options: wait for a final capitulation and preserve 100% of my capital, or start to buy in and run the risk of losing some money. This is not about the amount invested, it’s about the percentages invested. The HUI peaked at 630 in 2011, in early August it was just above 100, or an 84% decline from peak to then-current trough. I know that the HUI isn’t going to zero, as no index has ever been wiped out completely. So the question is what could be left on the downside from the roughly 100 level. The Dow declined 90% during the Great Depression, a similar decrease in the HUI would take it to 63. That price target seemed to be a very real possibility. That would most likely result in a 50% haircut in the major gold stocks that make up the index. My thought process was to buy in 20% at the August lows, and see what transpired from that point. If I lost 50% on that capital invested as the HUI went to 63, but still had 80% cash on the sidelines, then I would gladly take that. For two reasons. One, being able to buy 80% in at 63 would be an incredible opportunity for some serious long-term gains. But even if the index declined further after I bought – to say 40 to 50 – didn’t matter so much. I know that the absolute lows during capitulation events don’t hold for long, and those losses that occur at the tail end are made up in just a matter of months. It only took a few months for the Dow to double off of the bottom, and a year later it had tripled from the lows. So if the HUI plummeted to 63 or lower, it would increase back to 100 in short order. I would also quickly gain back that money lost on the initial capital outlay in that scenario. Conversely, using 20% of my allotted capital to purchase gold and silver stocks at the August lows protected me from getting behind the eight-ball, if that turned out to be the absolute bottom. I’m always trying to stay ahead of the curve. And when I get ahead I want to keep pushing that envelope and increase my distance even further. Not taking advantage of this opportunity given would have been risking losing that positioning. Plus, if the bottom was established at that point, it would have meant I would have started to buy at the absolute lows. Worse case it would be a good trade as it was clear that these stocks were turning up in the short-term. So either scenario had a very positive outcome, which is why it was a win-win type of event. Let me be clear, this is only applicable to the current price environment of the gold stock sector or when trying to time the bottom of a sector that has already experienced a massive decline. The Last Time Gold Will Trade Under $1,000? Nothing really bullish has occurred yet in the gold sector. And with all of these hurdles that it faces between now and the end of the year, it opens the door for further downside. My ultimate target since the Fall of 2014 has been 90-100 in GLD, or roughly $950-$1,000 in gold. I still believe that if there is one more decline, that it’s most likely going closer to the 90/$950 target. If that occurs, then it will probably be the last time you will be able to buy gold under $1,000 per ounce ever again. Prices of all assets continually rise over time as the money supply increases. The fair value of gold is around $1,400 an ounce (my estimate given the growth in the money supply and just looking at the current cash cost environment). That’s not going to decrease as time progresses, it’s only going to increase as the consistent trajectory of M2 is higher, not lower. Gold is no different from other goods that are produced. It costs money to extract gold from the ground, and as the money supply increases, then so do those costs. Where those costs are at gives us a good idea of where gold should be trading. But all assets can trade well above or below fair value for a given period of time. Eventually though, the rubber band gets stretched too much (in either direction) and you get a reversion to the mean or an overshoot. Gold below $1,000 would be a stretch already at current money supply levels and growth rates. In 10-20 years, it would be impossible to have gold under $1,000, given the amount of inflation that would be introduced to the system during that time. Just like today it would be impossible to have gold under $300, which is where it was at 15 years ago. So if the price does get to under $1,000, enjoy it will it last, because it will most likely be the final time gold ever trades in the three digits. That just shows you how much upside potential this sector has.

The Grandma Approach

Summary Don’t be afraid to take a long-horizon approach to investing. Invest in what you know and understand. Always do your due diligence. Introduction Recently I’ve had several conversations with my grandma that caused me to question everything I’ve ever learned about investing. My sweet grandmother is an incredibly intelligent and humble lady. She has the unique ability to light up any room with her infectious smile and unassuming attitude. On Saturdays she spends time at garage sales looking for deals, and on Sundays she attends church, likely praying for the well-being of her rebellious family. Before she retired, she was a communications professor at the University of Texas. What was she not? She is not a financial guru or valuation genius. I don’t think she knows what a price to earnings multiple is, she doesn’t know what EBITDA stands for, and I can definitively say she doesn’t build her own DCF or comps models. Regardless, my grandmother and grandfather took up investing after retiring from professional life. My grandpa primarily is a dividend investor who averages about 4-5% returns year over year on low beta stocks. My grandmother on the other hand has been very willing to take on risk, and she has averaged an absurd 35% average annual return over the last 20 years. In the last year and a half alone she has made a 100% return. When I heard this, I first apologized for spitting out my coffee all over my shirt. Then as I did my laundry, I ruminated over my disbelief and resolved myself to conduct an independent research study on my grandmother. I was determined to know how someone with almost no financial background could so handily outperform some of the most seasoned investment professionals. The Grandmother Approach After hours of discussion, I determined my grandmother has three main criteria when investing She must personally like and use the products or services of the underlying company regularly in her own daily life She doesn’t focus on quick profits, valuation theory, or macro-economic hearsay She buys and holds a stock as long as she likes what the company sells or provides, and she subsequently liquidates her shares when she no longer cares for whatever product or service the underlying company peddles And that’s about it. She might hold a stock forever if she likes what they do. She has no timetables, and she doesn’t really care much about balance sheets. She is a firm focused trend investor with the patience you might expect from a teacher and a mother of three children. You can scoff at her approach, but the truth is she has outperformed the market for the last 20 years. So, for the sake of money, let’s give grandma the credit she deserves and maybe try to learn from her approach. I’m going to go into more detail now about her historical picks, why she decided to buy, and when she finally decided to sell. Hopefully I’ll verbalize an actionable way we too can follow in Grandma’s footsteps. Grandma’s Winners I have decided to include a select sampling of certain stocks she has owned. If this article garners interest, I may choose to included more of her stock picks. It is true that I noticeably am covering a time frame exemplified by ever increasing stock valuations (and possibly artificially inflated returns), though it should be noted that grandma outperformed the market from 2008-2010 as well. Cracker Barrel (NASDAQ: CBRL ) Enter : April 11, 2012 @ 56.20 “Grandpa and I always love to eat at Cracker Barrel when we take road trips. Their service is very good, and the parking lot is always full. Also, Cracker Barrel is always full of people like grandpa and I.” I believe the “people like grandpa and I” comment meant elderly people. After talking to grandma, I did my own due diligence to check if she was correct. The parking lot was in fact completely full, and the target demographic was indeed, shall we say “a little greyer.” I received my chicken and dumplings within 10 minutes, had some coffee, paid for my food, and left within 30 minutes. Granted I visited only one Cracker Barrel in the middle of rural Georgia. However, My grandmother and I reasoned that she had visited around 90 unique locations and assured me her experience was similar each time. 90 of 500 locations within the US is an 18% sample size which frankly was large enough to equal a statistically significant sample group in my own mind. It was official, Cracker Barrel did operate like a well-oiled machine, and my grandma had recognized this fact and capitalized on it. Exit : July 9, 2015 @ 154.65 “I really like Cracker Barrel still, but grandpa has been telling me that the stock is overpriced. Jim Cramer didn’t seem too optimistic either.” It will be hard quantifying a statement like this, but let me try. I believe what she was trying to say is that she felt like she had realized a generous return on her initial investment and was satisfied with what she had returned. When everyone is saying a stock is overvalued, it may be prudent to listen to what they have to say. Result : 171.18% ROI over 3 years and 3 months before a 3.2% dividend. This translates to a 52.67% avg. annual unrealized return without dividend reinvestment. Takeaway : Remember, the grandma approach involves patience, a long horizon, and recognizing solid business. Cracker Barrel checked all these boxes for my grandma, so she invested (and committed to regularly eating/monitoring the performance of her company). I believe there is lot to be said for patience and commitment. Starbucks (NASDAQ: SBUX ) Enter : May 31, 2010 @ 13.26 “Grandpa and I go there all the time. I noticed that it was always full of young people, and I like that I can get little gifts. It seems like there are Starbucks everywhere!” This is largely hearsay and un-technical, but as a “young person” I can attest to the fluidity and convenience of Starbucks’ daily operations. This is largely intangible, but they also offer highly convenient free wifi, they pursue environmentally and socially conscious movements, they offer seasonal beverages (ex. hibiscus tea, pumpkin spice latte’s), they employ thousands, and personally (warning the following comment is highly subjective) I think there coffee is pretty good (albeit overpriced). I think personally, Starbucks’s successful high growth, socially conscious strategy has paid off well over the long term. Strictly from Grandma’s point of view though, Starbucks is: popular, convenient, and widely available. Currently Owns : October 31, 2015 (Present) @ 62.57 Recently, I’ve had conversations with grandma in which she has expressed concern about its value. She believes it is almost time to exit, but she does in fact still own all of her shares. She cited reasons such as its 52 week high, Jim Cramer, and (of course) grandpa. To be fair, SBUX is trading at a 35X P/E multiple with a mere 1.02% dividend. SBUX’s domestic growth opportunities are decreasing, and it will be interesting now to see how SBUX pursues global growth strategies. Considering the vast uncertainty regarding Starbuck’s future growth, it isn’t entirely unfair to see why grandma might have a point here. Result : 371.87% split adjusted return, annualized 68.65% return before its 1.02% dividend. I must say, I was blown away when I crunched the numbers. Cashing out would not be such a bad thing at this point. Takeaway : Popularity, patience, and positive customer experience. These key intangible (yet important) metrics indicate a well-run business/investment. There are hundreds of other reasons why Starbucks has been so successful, but for grandma I believe the three I just mentioned sum it up fairly well. Apple (NASDAQ: AAPL ) Enter : Nov, 1 2005 @ 9.69 “Your father bought me a fancy IPOD, but I couldn’t figure out how to use it for the longest time. I saw so many people buying them though that I knew it must be something special. I thought about it for awhile, and I read up on the company before I decided to buy shares.” It’s honestly hard to say she didn’t luck out on Apple. Apple is a fantastic company that has performed incredibly well. Right now I still think Apple is in value territory and could likely continue its seemingly endless upward trajectory (my opinion). I’ll assume she did her research well and realized Apple’s R&D/marketing was a true differentiator. Honestly I’m more blown away that she never decided to sell. Currently Owns : Presently 119.50 Honestly, holding a stock for 10 years seems like an eternity to me. Grandma calls Apple her “cash cow” and has never seen any reason to sell it. I think it’s fair to say that Apple makes just about anything look good. Apple products have transcended into status symbols in many cultures, and you’d be hard pressed to find someone who does not know at least what Apple is. At a current P/E multiple of 13x, you could argue that Apple is value stock still. Result : Split adjusted return 1,300% before 1.78% dividend over a 10 year horizon. Takeaway : If the quality and desirability of a new technology is apparent in the eyes of a grandmother in her 70s, it’s possible that it’s something special. On a higher level, sometimes jumping on the bandwagon, with a long-term horizon in mind, is not necessarily a bad thing. However, it is important to remain diligent and continually research the performance of the business, the products it is offering, and the desirability of its largest cash producing offerings. The One That Got Away: Facebook (NASDAQ: FB ) What Happened? I mention Facebook because my grandma wanted to buy Facebook from the very beginning, and to this day she is angry that she did not. She was convinced (as many were) that the valuation when Facebook IPO’d was too high, so she chose not to buy in. However, Facebook (even at it’s initially high price @ 38.23 in 2012) has seen a 166.73% price appreciation as of today. Tips for Investing Like Grandma Don’t get too caught up in the noise (CNBC, Fox Business, family), instead remain patient and maintain realistic expectations Don’t be afraid to take a long-horizon approach to investing Focus on companies you understand (and like!) Do your due diligence and spend time getting personally invested in the products and services your company offers Conclusion That’s it! The grandma approach to investing takes patience and personal devotion. Just like you would put time into spouses and family members, get invested in the culture and products of the company you own. Forget the “analyst opinions” and the “most recent news” and focus on what the company you own does for the world. Don’t trust me? Luckily, numbers don’t lie and I believe even the most veteran money manager can learn a thing or two from “investing with grandma.”