Patience Is A Virtue and The Same Is True When Investing In Stocks

by Hank Coleman

soda-postersPatience is a virtue, and that sentiment has never been more prevalent than when investing in the stock market especially in today’s trying market.  Investors must have a reason to purchase an individual stock.  You should have conviction backed up by solid research in why you believe that an individual stock will increase in value before you commit your precious dollars to it.

For years and years, I have loved the soda, Dr. Pepper.  It has been my personal favorite beverage of choice since I was a little kid.  So, when Cadbury Schweppes, the maker of Creme Eggs and Trident gum, spun Dr. Pepper Snapple Group (Stock Symbol: DPS) off into a separately traded company in May 2008, I was very excited about buying shares of stock in the company.  One of the easiest ways to find a company to invest in is to look at the product you use in your everyday life.  Dr. Pepper was a “no brainer” to look at and conduct more research in hopes that it might make a great investment.

The Fundamentals.  Not only do I love the product that the Texas based company sells, but the company’s financial fundamentals, its quantitative metrics, suggested that the company’s stock price was undervalued.  I wrote about how the company’s Price to Earnings Ratio (P/E Ratio) did not match up with its industry over a year ago.  For example, the P/E Ratio of the stock was valued similar to a soda bottler and not a manufacturer like it should be.  As you can see by my valuation calculations in the earlier blog posting, I thought that Dr. Pepper Snapple Group should have a higher share price than it currently had a year ago.

Then The Recession Hit.  So, I bought shares of the stock at a price of $25.99 a little over a year ago, and then the recession hit.  Like most stocks, good and bad companies alike, the price of Dr. Pepper’s shares fell.  They fell to a low of $11.83 in March at the bottom of the stock market’s crash.  Finally, this past quarter, Wall Street realized that the company was still making a profit, increasing its revenue, increasing its distribution network throughout the country, expanding overseas slowly, and increasing its net income.

As of this past Friday, the price of Dr. Pepper Snapple Group is $30.09.  That’s a 14% gain on my investment.  While that is not as crazy a gain that the overall market has had from its low in March, it is a respectable return on my investment.  I have earned 14% over approximately 13 months which is better than any certificate of deposit or money market fund could have done.  Using a small percentage of your overall investing portfolio for individual stock speculation is a great supplement to your dollar cost averaging of index funds and actively managed mutual funds which make up the primary portion of your investment nest egg

Disclaimer: The author owns stock in the company mentioned in this posting. No writings in the blog constitutes specific buy, sell, or hold advice. You should seek advice from a qualified finance professional before acting.

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