wearmanyhats

Let’s take the pulse of your portfolio.  If you somehow put all of your money into a money market before the drop of the stock market last year, your portfolio is looking like it has a strong steady pulse.  You’ve saved your equity, and must be feeling pretty smug while watching all of the people around you going under like the Titanic. However, your portfolio is alive, not thriving.  It’s a great thing to be alive when others around you are dying, but consider which son you would rather have: one lying on the couch, staring at the ceiling every day, or one that is going out working, meeting friends, and making contributions to society.  That’s why we can honestly say your portfolio is alive, but not thriving.

If you put your money into Treasuries, then you are at least making money in a safe vehicle while other vehicles are being hit by trains.  If these are TIPs, which are treasuries adjusted for inflation, we salute you at being very lucky and wise.  You are thriving as much as anyone can in these economic times.

Now let’s move to the battle wearied stock investors.  Here stand the people with eternal hope that helplessly watched their portfolios erode about 50%. These are the folks who need to see if their investments are still alive or almost dead, or completely dead.

First, look at the P/E ratio.  If you have stocks with a P/E ratio over 20, you should be concerned.  We will deal with these tomorrow in this blog.

If your stock picks have a P/E of under 20, you need to see if these are stocks you still wish to hold.  If you feel the companies are just going through a blip in time due to the market drop overall, then holding them if you have the time to recover might be sensible.  Find their profit/loss statement.  Are they still profitable?  That means the net income is “in the black.”  It has positive numbers.  That would be a very good thing.  This is a “live but beaten up stock.” Now you just have to make a decision about whether or not you wish to keep it.

If the P/E ratio is running in the negative, you better have a good reason for having  money into this company.  Is this a bit of money you feel could be delegated for risky investments?  Or was this a “hot stock tip” from your bowling buddy?   Then you need to ask yourself if the original reason for putting your money into this company still exists. For example, are they the only one that holds the patent on a certain invention?  Do they have big contracts coming up that will be quite profitable?   Or is this a case where the company has been hit hard by the recession? If there is a good reason to hang with this stock, then I would say it is “mostly dead.”

Tomorrow we will discuss what to do with stocks that are probably dead.
You are welcome to leave questions in the comment section, as all people might like to know about a particular stock.  Feel free and we can share ideas about it.

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