Mar 23, 2014

Stock Buy Break it Down - 7, Pigtails' First Shares

I'd like to set aside some money for my daughter.

One option is to chuck a check into a savings account and earn less than 1% per year.  This option is safe, but doesn't keep pace with inflation.  I've written about why it's risky to be too "safe."

Another option is to buy stocks.  This one has no guarantee we'll make a profit, and we could lose a lot if shares tank. I'm confident if we do the research, hold for the long term and tolerate fluctuations, we'll come out okay in the end.

Doing is the best teacher, so figured I'd let my daughter ride the stock market coaster rather than simply telling her about investing.  The criteria are simple:

-We'll invest $1,000
-Diversify by investing in two or three companies
-Invest in both stable and emerging companies
-Pigtails can pick the stocks, but we'll discuss options and agree on good choices together

She asked about Starbucks, so we pulled up their chart on Google Finance:

The numbers in the blue boxes look frumpy to me.  P/E ratio (price to earnings) of 593 indicates the price per share is expensive compared to earnings.  Dunkin' Donuts competes with Starbucks, their P/E ratio is 38.  Keurig's P/E is 33. The other blue box shows Starbucks only earned $.13 per share (EPS).  Keurig earned $3.37 per share.

Starbucks is expensive, earns only a few pennies per share and pays a whopping $.26 dividend.  No thanks, moving on.

Next she asked about Target.  Their chart looks pretty good, with a P/E ratio of 19 and solid earnings of $3.08 per share.

See how the chart dives in January and February...that's fallout from Target's customer credit/debit card breach debacle. That issue could continue to drag the stock price down, let's hope not.  Because of the drop, I think this is a good time to buy, so told Pigtails to pull the trigger.

She logged into her eTrade account and bought 4 shares at $59 each.

I encouraged Pigtails to buys shares in both stable and emerging companies.  Target is stable, so next we looked at young, growing companies.  She hears me often talk about Tesla, so was curious about investing.

Their chart doesn't look so hot.  Last quarter they lost $.70 per share, and their stock price is near record highs. Expensive and losing money.

However, other measures of Tesla foretell a strong future.  They cranked out over 20,000 Model S sedans in 2013, to the tune of $80,000+ apiece.  Strong demand in China, and Tesla's the #1 selling brand in Norway.  Risky investment, but I predict the stock will trend upward in the coming decade.

Buy, Pigtails, buy.  She used up her balance of the $1,000 with 3 shares of Tesla.

So far she's lost $41 between Target and Tesla.  The dip really bothered her.  Told her she's in it for the long haul, be patient, then we went outside and rode RipStiks.

I'll post an update in a few months with how her stock's doing.



  1. Kathryn3/25/2014

    does Tesla pay a dividend?

  2. Tesla doesn't pay a dividend yet, it is common for younger companies to not pay early on. Instead, Tesla is using their revenue to build electric charging stations and expand their factory line. Demand for the Model S exceeds production capacity, so they are hiring employees and building assembly robots.

    I think it will be a few years before things settle down and they'll be in a position to share profits through dividends. Exciting things coming down the pipe, they are in planning stages now to build the largest battery factory in the world.

  3. Anonymous3/25/2014

    Get Pigtails a dividend paying stock. Even if it is just 80 cents or a buck that she gets, getting something tangible back from your stocks is also a good lesson. GE or Coke are things she would see every day.

    1. Done, she bought TGT, which pays a dividend.

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