Buying a Stock: Simple Concept … But a Complex Process

by Alyssa Oursler | February 14, 2013 6:30 am

Buying a Stock: Simple Concept … But a Complex Process

Taking the first plunge into the stock market is scary — after all, that’s when you start to put real money on the line. So near the beginning of the year, when it became my time to dip a toe in, I decided to start as simply as possible.

youngInvestorsB.png Buying a Stock: Simple Concept ... But a Complex Process[1]I wanted my first portfolio target to be a big blue-chip stock that I’m familiar with, and one with ample coverage and available information, so I honed in on good ol’ McDonald’s (NYSE:MCD[2]). I was drawn to it for a few pretty straightforward reasons:

  1. It’s cheap: The fast-food giant had a rough 2012 — around the time I decided I should start investing beyond my 401(k) — so it looked fairly cheap.
  2. Steady business: Call eating out “discretionary” all you want, but McDonald’s has become a consumer staple in its own right.
  3. Nice dividend: McDonald’s pays out a large and dependable dividend[3]. McDonald’s has paid shareholders since 1976, and that dividend has grown every year. Currently, MCD yields north of 3%[4].

See? Simple.

The problem is that I usually don’t keep things simple. Instead, I tend to overanalyze things to the point of paralysis … and despite my best intentions, this time was no exception.

Despite the basic logic that led me to the stock, I still wanted some sort of confirmation that McDonald’s was the best way to get started. So, I bribed my dad with a six-pack and a pizza one night to teach me what he knows about technical analysis (breaking down charts is relatively foreign to me). My dad dabbled in the market years ago, hanging and highlighting stock charts in our home office and teaching my then-5-year-old brother what a cup-and-handle formation looked like.

The night turned into much more than a primer about technicals, though. For one, I didn’t realize that my dad was a firm believer in William O’Neil’s CANSLIM strategy[5], but soon I was getting the low-down about its ins and outs.

At one point, though, my dad took a look at the chart and shook his head. “Your stock has no base,” he told me. “And lots of overhead resistance.” Generally, the stocks to which he is drawn are breaking out to new highs … which McDonald’s clearly wasn’t at the time.

ycharts chart5 Buying a Stock: Simple Concept ... But a Complex Process

At first, my dad’s doubts became my own and I was worried that maybe I was making the wrong pick. Encountering a different opinion stalled me … and, in the end, that uncertainty cost me. MCD was outpacing the market (until yesterday).

ycharts chart7 Buying a Stock: Simple Concept ... But a Complex Process

I’ve since realized — as I’m sure you have in the course of reading this — that the problem wasn’t the chart, but that we had completely different strategies. What my dad saw as a weak chart, I saw as opportunity. I was planning to hold MCD for the long-term as a dividend play; my dad was looking to (forgive me) McDouble my money on a breakout.

Funnily enough, my dad now believes the chart is starting to look strong after its recent run … and he recommended I get into MCD on a short-term pullback. That’s my plan, but if I had just taken my own advice and not procrastinated opening my brokerage account, I could have bought it in the mid-$80s vs. its current tag of $94.

Hindsight is 20/20.

This kind of situation extends far beyond McDonald’s, far beyond a night talking stocks with my dad, far beyond my own broader experience. All anyone has to do is simply scroll through a few financial media outlets, and they’ll find countless stories talking about any given stock, mutual fund or ETF — all based on different strategies and emphasis, and usually with varying targets in both directions.

The lesson: No one has the definitive “right answer” when it comes to how you want to invest. (After all, if they did, their opinions wouldn’t be different.) Instead, you have to take all the opinions and information sent flying your way — be it from your parents or from a stock guru — and eventually run it through your own personal filter.

You’re the one who has to feel good about what you buy.

I’m still glad I bribed my dad to tell me about his investing ideas. We should all try to expose ourselves to several opinions; they might help you to better define your goals and ideas, even if you don’t agree with them. Hey, maybe one day I’ll change my strategy, realize that Papa does know best and adopt his particular style.

For now, though, I’m kicking myself for not following my instincts, and awaiting a better entry point.

As of this writing, Alyssa Oursler (regrettably) does not hold a position in any of the aforementioned securities.

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Endnotes:
  1. [Image]: http://investorplace.com/hot-topics/young-investors-series/
  2. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  3. dependable dividend: http://investorplace.com/dividend-paying-stocks/
  4. north of 3%: http://investorplace.com/2013/02/top-10-dow-dividend-stocks-for-february-2013/
  5. CANSLIM strategy: http://www.investopedia.com/terms/c/canslim.asp
  6. Sign up for our Young Investors e-letter: https://order.investorplace.com/index.jsp?sid=QL8104

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