IFB13: The Unreliability of Forward P/E and 10% Dividend Stocks

Welcome to session 13 of the Investing for Beginners podcast. In today’s session, we have a Q&A with Steven about many different topics, but the two main items for discussion are the forward P/E and 10% dividend paying stocks. Calculating a forward P/E can be tricky and relying on the financial websites to do it for you can be risky, they are not always using the most relevant data and sometimes rely on analysts reports. This is risky because the analyst’s data can be skewed by their biases, which can lead you astray. We discuss this and much more.

* How to find great investments using the Value Trap Indicator, even when the investments are months old
* The best financial websites to find the most up to date data to calculate a P/E
* The fallacy of using a forward P/E and how the analyst’s data could be biased
* Are companies paying a 10% dividend risky?
* How to find safe, reliable dividend paying stocks

How would I know if any of the choices in Andrew’s eletter would be good investments now?
Andrew: Well, I have a good, nice and easy answer for you. That’s the good news, first off a hot tip for a fellow Californian, I bet it’s beautiful out there right now. Basically, if you look at the eletter portfolio and you will see all the positions like you said it shows what date I recommended it and then I also show what the price was when I recommended it and what the current price is now.
On that second to the last column, you will see a return percentage and that shows you much the stock has returned since recommendation. And all the stocks that are on there are going to be a hold unless a stock triggers a trailing stop or if I’m trying to take some profits then we’ll go ahead and activate a sell. But a majority of the time all the positions are going to be a hold.
And what I would do if it was me starting over trying to build a new portfolio I would try to build these positions slowly over time and if I was trying to buy maybe buy more than one position at a time I would just look at the stocks that haven’t appreciated yet, as in haven’t made any significant gains. I am looking at the portfolio right now, many of the stocks that have really high gains you are going to want to stay away from because those, not to say they won’t be great investments in the future.
But the main premise of the kind of investing that Dave and I like to teach is buying stocks when they’re trading at a discount to what they are really worth. Although a lot of these stocks still might be at a discount, if they’ve already seen an uptick in the price you likely aren’t getting as much of a discount. With every single stock on here, we are trying to get a discount. Any stock that hasn’t really risen that much is likely still within that discount range. I’ve got stocks on here, there’s one up 31%, 86%, 13%, those you probably, generally want to stay away from, see if they dip lower. There’s stock on here that’s down 0.8%, and there’s another one that down 9%, stocks like those are still going to be good buys today because they are trading at around the same as when I recommended them.
I’m constantly reevaluating these stocks as new data comes out. I tend to do that at least once a year, for many of these positions. If I haven’t triggered a sell and notified a sell on the eletter issued then you’ll know that these stocks are still, they have a good premise of why they should be bought or held. There’s a couple in there, a good group of maybe three or four where the shares haven’t really gone up too in price,