No. of Recommendations: 7
On the board for 'Stocks A to Z', lulupop launched a thread on 'Investing in Cement Stocks'. I've traded in the sector, so I got involved with the discussion. He wrote:
"I'm very interested in cement stocks after reading Lou Whiteman's article Investing in Cement Stocks October 22, 2022 in Motley Fools. I feel cement can really take off considering the infrastructure bill was signed, the northern pine weevil is decimating pine forests in The United States and Canada causing the price of lumber to soar and 3-D printed concrete houses are being built. Cement is dependent on fossil fuels, but Heliogen is working on a process to use concentrated sunlight to fuel the cement making process.
Vulcan Materials Company is experimenting with a process called carbon cure. It injects carbon into concrete to make it stronger while capturing the carbon to keep it out of the atmosphere. Any thoughts on Heliogen, Vulcan, James Hardie Industries, Cemex or other companies mentioned in Mr. Whiteman's article?"
pauleckler wrote (in part):
"Materials stock might be ok as long term holdings. I don't see them as growth stocks. They will be lucky to keep up with inflation and grow with the population. Translation, like most commodity stocks, they are cyclicals. Great to buy them when they are down to accumulate. But spotting the bottom is always tricky. Better to wait until you see signs of recovery. Otherwise, you can be in for a long wait."
I replied:
"HLGN merits a 'Pass'. (Currently unprofitable and not forecast to become profitable over the next three years.)
JHX merits a 'Pass'. (High level of debt. Div not well covered. Forecasted earnings growth is a lowly 1.4%.)
CX merits a 'Consider'. (Strong financial health. Earnings forecasted to grow 7.11% per year. Pays a reliable 3.2% div.)
But if it's an infrastructure play you're looking for, rather than just a bet on materials, look at GVA, whose balance sheet is decent and whose forecasted earnings growth is 49%. Also, some of the companies in the industry/sector issue bonds that are worth considering. (E.g., I've done well with VMC's debt.)"
lulupop followed up with:
"This is my last year with MF's. I won't re-subscribe. For over 10 years, I found their information helpful, and then they jumped the shark when they recommended stocks like Lemonade and Match. Would you feel comfortable recommending a website or stock analysis subscription?
I replied:
"Let me grab some breakfast, and then I'll get back to you with an answer you probably aren't going to like, but is what you need to do, namely, become your own stock tipster." Later, now breakfasted, I replied:
"lulupop, You've gotta answer for yourself why you felt comfortable with TMF's past stock picks and why you're now losing money with them. The answer is simple. "Never confuse brains with an bull market."
When the bulls are running, especially when they are being fed an endless stream of nearly free money, stocks get bid up, and darts do as good as a job of picking winners as any thing, because everything is bubbling up. But when markets get tough, then it becomes obvious who has a sound investing method or not. Or as Buffet has said on many occasions, 'When the tide goes out, you can see who's been swimming naked.' Cathy Woods is a prime example of such nakedness. The GBoyZ are another. So, what to do?
I'd suggest that you go back to basics. Get a copy of Ben Graham's, 'The Intelligent Investor', and work your way through it, pencil in hand, underlining and making notes. Next, get a copy of Justin Mamis', 'The Nature of Risk', and do the same study. A third book is Edwin Lefevre's, 'Reminiscences of a Stock Operator'. A fourth is Stan Weinstein's, 'Secrets for Profiting in Bull and Bear Markets'.
Between the four, you should come away with the idea that investing consists in making decisions under conditions of uncertainty, but that there generally is enough evidence in a company's financial statements and/or in how the market is trading the stock to make an informed decision such that, more often than not, you keep yourself out of trouble, as well as make a decent return.
As for websites that offer stock tips, there are hundreds of them. But none of them will do you any good if you don't know how to evaluate their recommendations. In time and with practice, you should be able to gather in under two minutes as much info as you need to make a decision, yea or nay, whether you want to size a position and try to execute.
In short, this stock investing stuff ain't rocket science. It's more like bass plugging or small creek trout fishing. You read the water, make a cast or two, and then move on. Some days, you limit out. Some times, the catch for the day was just time on the water.
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That was the thread, and I liked my reply, so I've reproduced it here, because it's as good a summary as any of my 'investing philosophy', to wit: securities analysis is securities analysis, no matter the underlying, with 'risk management' being its common theme. Or as Will Rogers quipped, "The return *of* my principal is more important to me than the return *on* my principal", a sentiment Buffet echoes in his 'Two Rules for Investing':
Rule #1: "Don't lose money." Rule #2: "Remember Rule #1."
OTOH, as Justin Mamis points out in his book, 'The Nature of Risk', using championship tennis as an example, "Afraid to lose is also afraid to win." So there's an awful lot of shrewd judgment (based on experience) that has to happen if a would-be investor is to make a decent return, and that experience generally comes from 'bad judgment' (and then surviving it and learning from it).
