In October of 2017, our financial advisor contacted us with this message:
“If you have idle cash that can be put to work, I want us to take advantage of the recent pullback in AT&T, GE, Altria, and Verizon plus a new addition Waste Management WM. These stocks are currently out of favor while the rest of the portfolio is on a nice positive roll.”
We did have idle cash building up, so I talked it over with Morviticus to get a feel for his thoughts on purchasing these “unfavorable” stocks. In the end we agreed to invest. Here are the factors we took into account in making our decision:
Time is On Our Side
We’re young and can absorb the risk. In the worse case scenario where we lose the money we still have a couple of decades we can work to recover, so we continue doing what we are doing now (which hasn’t been so bad, lately.) In the best case scenario we can ratchet our savings ahead much more aggressively, hence buying more years of freedom.
Maybe Unfavorable Stocks Really Shouldn’t Be Unfavorable
Human emotion often skews stock prices such that favorable stocks have unfavorable prices. An example is Tesla NASDAQ: TSLA versus Ford NYSE: F. People are hyped about Tesla. It’s the in stock like NVidia, Apple, Google, and Netflix. It’s the future!
- Between 2016 and 2017 Tesla traded well over $300 / share, while Ford traded around $11.00, peaking at $13.23.
- Ford produced 3.2 million cars in 2017, while Tesla produced 83,000 cars.
- In the past 5 years, Ford has made $26 billion, while Tesla has hemorrhaged $2.3 billion, requiring VC cash infusions to stay afloat.
As you can see, Tesla’s sticker price reflects all this hype, and if you take a closer look, the difference between Tesla and Ford (or Tesla and other major automakers) may not make much sense.
Ignore the Hype and Go For Utility
Companies like Waste Management [NYSE: WM] may not be flashy, but there will always be a societal demand for the work they provide. Humans produce waste, and someone needs to clean that shit up. Look at what happened to New York City in 1968 when their sanitation workers went on strike: Trash accumulated so quickly that, with over 100,000 tons of waist-high garbage swirling through the streets, the governor declared a health emergency and ultimately caved in to the workers demands for higher pay.
The bottom line? We need waste management services.
Since October of 2017, our biggest loser (and undoubtedly one of the biggest losers of 2017) has been GE. In only the 2nd time since the great depression they cut their dividend and have also announced a few financial bombshells that have sent their stock plummeting even further. I talk about what I’ve learned in my other post, 2017’s Biggest Loser: GE? Maybe in ten or twenty years GE will have one hell of a comeback, carrying Morviticus and I through our retirement. Who knows? Just look at Dominoes.