COMMENTARY | COLUMNISTS | BRENT WILSEY

Don't let panic get in the way of a good investment

A lot of fun has left the market now that the election is over, and fear of falling off the "fiscal cliff" has scared many investors into selling or staying on the sidelines until things are resolved.

To me, this makes no sense unless one thinks that we will never resolve our problems and that once again, like back in 2009, the U.S. government is going to fold. By that logic, one should also believe that no one will ever buy another Coke again and that all U.S. companies are going to go broke.

If that is what one believes then, yes, he should sell everything and move to the hills. If, however, your logical side tells you that some resolution will come, maybe not completely to your liking but still a resolution, then your only option should be to invest today before the market rallies on the good news.

As an investor you will understand that you may not buy Coca-Cola (NYSE: KO) at the absolute bottom, but you're willing to collect a 2.8 percent dividend per year. If you pay $36 per share today, and 12 months from now, after the company has earned roughly $2 per share, the stock then trades at $39 per share, you have made nearly 10 percent on your investment.

Now, keep in mind that Coca-Cola has traded as high as $41 and as low as $32 per share, and that it is not going to be a perfect increasing line upward to that $39 per share price where you want the stock to be. There will be times when, maybe, the stock pulls back to $32 again and your emotions will start beating you up, saying, "Sell! Sell! Why was I so stupid to buy this stock at $36 when I knew I should have waited?" And you end up selling to make yourself feel better.

You will feel better for a while until sometime in the future, when you’re going to see Coke trading at $39 or $42 or some other price. You’re going to say, "Oh my gosh, I missed a good buying opportunity, and I better jump in now before I miss any more of the run-up."

Then, as soon as you do that, the next month the company reports earnings and they miss by a penny. The stock begins a 5-10 percent decline, and now there is something else going on with the government or China or the middle. Once again, you panic and sell with little profit or a loss and tell yourself the stock market is just too risky to ever buy stocks again.

The stock market is not the problem. It is not risky if you know the rules. What is risky, however, is allowing your emotions to determine your buy and sell decisions and doing so with a lack of real information (and I’m not talking about the sound bites you hear on the evening news). If you want to make money investing, you must not use fear and greed as a deciding factor in your investment decisions. You need to read the rulebook on investing and understand how it works. Once you do, you will become a successful long-term investor.

If you can’t control your emotions, then hire yourself a good coach, aka a financial adviser who knows the investment rules inside and out.

Because I mentioned Coke, I thought I should take a quick look for you to see if it is currently a buy.

Unfortunately, the PE is high at 19 along with a forward PE of 16.7, with the stock trading around $36.50. It does pay a 2.8 percent dividend, using 51 percent of its earnings to do so. Sales did climb 3.5 percent year over year, which was better than the industry at 2.7 percent.

It looks like Coke either had some write-offs this year or non-operational gains in the previous 12 months as its EPS year over year declined by 29.4 percent, worse than the industry average of 18.9 percent.

The current ratio looks OK at 1.1, compared to the industry at 1.2. Debt to equity is at 98.6 percent for Coke, higher than the industry average of 74.2. For a company like Coke, I would be OK with this higher debt, but not much more.

At the bottom line, for every Coke you drink, the company makes about 18.6 percent — nearly 50 percent better than the industry net profit margin of 12.4 percent. The company also has a good receivable turnover at 9.3 for the last 12 months and an inventory turnover of 5.7, just under the industry's, but still OK.

So Coke is not a buy, currently, based on my fundamental analysis, but my clients know that on my buy list I have 22 companies. You either have to create your own buy list or come see me for a consultation on investing. I hope you get the point that the world is not coming to an end, and we all know you're supposed to buy low and sell high. So what are you waiting for?

Have a question or a company you'd like me to take a look at? Email me at brent@wilseyassetmanagement.com.



Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.

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