Motley Fool analyst Jason Moser chats with Rick Engdahl in a side-of-desk interview about developing a personal investment philosophy, and shares his own four-point system for deciding whether a particular stock is right for his portfolio.
Would you buy a stock that was at its 52-week high? In this video segment, Jason explains why you shouldn't necessarily discount the stock and discusses some of the issues that go into making that decision, especially regarding quantitative easing and today's market.
A full transcript follows the video.
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Rick Engdahl: I know that it's hard to, if I'm thinking about buying a stock and I just... as much as I know not to put much weight into it, you always look at the chart, and you see where it's been.
Jason Moser: Oh, yeah. Yeah.
Rick: You see this thing that's steadily going up and up and up, and you think, "Oh, I've missed those chances. I've missed those chances."
Rick: "This thing is at its 52-week high, or whatever. There's just no way I can buy this." And yet, maybe it's doing that because it's performing really well. How do you get over that emotional knee-jerk, "Oh, I can't. This is at its 52-week high. I can't buy it."
Jason: I think that's a great point, and it's one that I was never all that good about at first, either. I think that was one of the many lessons I learned from David Gardner, was being able to add to your winners.
You have to get past that perception that if you're buying a stock on its way up, then you're doing something wrong. The way to think about this, really, is we're not looking for stocks. We're looking for businesses.
I think there's a difference between a stock analyst and a business analyst. We're looking at these businesses and these companies and how they're growing and how they're making money and what their prospects look like for many years to come.
All of a sudden, it doesn't really matter so much, that one little snapshot in time. The stock was at its 52-week high on July 25, 2013, or whatever. It's just, you look at it and you say, "OK, well, it's at its 52-week high, but why is it at its 52-week high? Is it doing well?"
You can look back through a couple of quarters of earnings announcements to see: Is the company doing well, or is the company losing market share? Is this really expensive?
I think this is probably a great time in life to be able to learn that lesson because we have this situation where everybody's wondering, "When is the Fed going to take its foot off the gas" and all this quantitative easing just keeps on pushing these stock prices up, and there's something to that.
The stock market is the place to be right now, and that's where all the returns are. What that consequently does, it's basically that rising tide that's lifting every boat.
I looked at a couple of companies earlier just to compare them to the market to see how they'd been doing so far this year. These are companies that I don't find particularly attractive in any way, shape, or form, and I was amazed to see that they were beating the market very handily, just simply because the market's been doing nothing but going straight up.
You can look at it from that perspective too and say, "All right, if I look at these companies, look at their earnings calls, look at the past couple of quarters, they're not performing very well. Why are their stock prices going up?"
Well, everybody's stock price is going up, really, at this point in time too, so there could be something to that. But I think that when you find companies that are performing well, the winners keep on winning. You have to look at it for a period of years, as opposed to a period of months or even days.
Then I think really the surefire way to let it sink in is to actually do it. I think that as one of the things that I did with Amazon that really helped me learn more about that. We did it with my daughters, when they bought Starbucks.
We looked at Starbucks and it was $55 for a share and we thought, "Well, it's not cheap by any means, but by the same token, it's an awesome business that's doing really well." Starbucks now is $72. I'm feeling pretty good about that investment.
Bought Amazon at $180, now it's $300 and something, and I'm feeling pretty good about that. That's why I think practice helps as well.
Rick: I love the analogy that "This horse keeps winning the race. I'd better not bet on that horse anymore."
Jason: It's kind of like, if you think about it back when Tiger Woods was going nuts on the PGA Tour, were you going to go out there and bet against him, saying, "This guy can't win any more because he's at his peak?" No, you're going to be on him.
I think you have to look at the stock market the same way. It's just the stock market allows us to find these companies that are more sustainable than someone's golf game. I think when a company finds a good business model and it can execute it, that's going to be a little bit more sustainable than someone's golf game and you can feel a little bit more comfortable about betting on that.
The idea is betting on the winners. The winners tend to keep on winning, and that's what we're doing -- we just continue to look for those long-term winners.