DISCLAIMER: This is an interview with a friend and should be read as such. For professional investing advice, please consult your personal financial advisor. This interview should in no way be construed as professional investing advice for your personal portfolio. You are responsible for your own money, not me or Greg Hull.

Last time, Greg and Charlie and I chatted about the fruitless pursuit known as “mutual funds,” the tech boom and the value of doing your own research. We also introduced Charlie to the internets, but that’s neither here nor there…

LS: So. . .

1. Debt Free
2. Budget like a power house (in envelopes if you have to)

GH: Yeah that’s a simple way, that’s a simple budgeting system that everyone can do.

LS: Yeah. That’s what we do.

GH: Everybody can do that.

LS: Yea. It’s like “Awww crap! There’s no money in the envelope! I wanna spend more!”

“Well you can’t!”

GH: [laughs.]

LS: “There’s nothing there!”

GH: [laughs.] That’s right. You can’t steal from one envelope to go to the other. It just doesn’t work.

LS: Yeah, and if you have to you need to reorder your envelopes. Okay. So I’m just s’posed ta buy stocks and let ‘em ride?

GH: What you do in the market. . . basically you’re doing research on companies for the buy-and-hold strategy, it’s what Warren Buffet does. You find companies that have strong financial security, have good leadership and have good public relations. After those three things you find companies that have all those things and are undervalued for what they should be. Okay?

LS: That’s good.

GH: If you find a company that has those three things, but are overpriced, you’re not gonna make any money on them.

LS: Like Netflix (NFLX) right now?

GH: Yeah. You find a company that is undervalued from what it should be – if it’s lower than its market competitors. Say I have a stock that is exactly the same as another company: the financials, the leadership, the public relations, but one’s $20 and the other is $10, why would I not choose the one at $10?

LS: Like WPRT ten months ago.

GH: Right. It’s a good company, but it’s undervalued for what it should be. You buy into those companies and you hold them. Forever. You don’t sell them. There’s no point in selling them because you’ve found that they’re good companies and you’ve found them at a good price. So you buy ‘em and hold onto ‘em. If the stock goes down from where you bought it at, that’s a good thing. It’s on sale. If you get a little extra money, you can buy more of it and lower your price. But if it goes up over the course of twenty, thirty, forty, fifty years, you make money. Buy-and-hold strategy – this is what Warren Buffet does. I’ve taken that and modified it a little bit. I still do buy-and-hold strategy, but I only do it with stocks that pay a dividend, companies that re-distribute the wealth back to their investors as kind of a thank-you for investing in our stock.

CA: Sounds like communism.

LS: Alright!

GH: [laughs.] Communism from Jesus.

LS: G.K. Chesterton called that distributionism. Wrote a little article called Utopia of Users which made fun of capitalism.

GH: [laughs.] So yeah, if a $10 stock pays a $0.10 dividend, you buy the stock at $10 and it pays you $0.10 a share just for owning the stock.

LS: Okay. So I’m getting money and I reinvest it in the stock?

GH: Yeah, or you just have cash on hand for something else.

LS: Is it better to do DRIP or just keep the cash?

GH: It depends. Depends on what you want to do. If you’re wanting to grow your investments as fast as possible, reinvesting it is the best option. But if you’re wanting to make income out of it, if you’re gonna be pulling that out, it’s better to get it out because you’re going to be doing it for other things. Sometimes it’s better to leave the cash out for down times where you can buy in for lower prices.

LS: Keep cash on hand?

GH: Always. Always keep cash on hand. Jesus is King, but cash is really good.

LS: So we have this stock and it’s paying us dividends and Charlie’s making money like a fiend every three months or four months…

GH: The good thing about dividends is you make money no matter what. There’s only three things a stock can do. Go up. Go down. Stay the same.

LS: Oooooh. Oh man.

GH: It can’t go slantways or sideways or other ways.

LS: Dere’s rain’a comin’ up sun’tines e’en from’a ground up to deh sky.

GH: [laughs.] And any other ways you can think of. Only three things. Up. Down. Stays the same. The goal is to make money regardless.

LS: Oh! Woah ho ho!

GH: [laughs.] So it goes up, you make money – obviously. It goes down, you still make money ‘cause the dividend’s going to pay you every three months no matter what the price of the stock is.

LS: Okay.

GH: Okay?

LS: Don’t panic if it goes down?

GH: Yeah, don’t panic. It could go down for awhile, but it will come back. The point’s to hold the stock for thirty, forty, fifty years anyway. Not to buy and sell every single month. So you’ve already found a stock that you like at a price that you like, so if it goes down, that just means it’s a better price. If you get money, you can get more. You don’t jump out just because it’s down. There are two things that can kill your investment: greed and panic.

LS: Hmmm. We’ve certainly had enough of both in the past two years.

GH: [laughs.]

LS: Kramer was callin’ it the It’s Just Emotion Taking Me Over market:

[youtube=”http://www.youtube.com/watch?v=nIoIz8r0tIg”]

GH: Yeah. The whole point is to take emotion out of it. The two worst emotions are greed and panic. But once you have your dividend-paying stocks, you have the ability to trade options. A lot of people think stock options in a corporate sense.

LS: Yeah, that’s the only way I ever heard of it.

GH: Right. In the corporate world, you work for a company and they give you stock options which means in your retirement account, you can buy company stock at a lower price.

LS: Right.

GH: Right? Essentially it’s the same thing, but with a perk. You have the ability to buy and sell your options at a given price – whatever price somebody agrees on. I can buy my stock at a given price or I can sell my stock at a given price. These are options. For example, if I buy a stock at $10, Lance, but I don’t want to sell it till at least $12.50 and you come along and say, “Yeah, I’ll buy it at $12.50.” I say, “Okay, I’ll sell it to you at $12.50, but you have to give me a dollar for every share. That means I can only sell it to you, and only at $12.50.” The stock jumps, goes to $15. You’re like, “Greg? I wanna buy your stock.” Okay. I sell it to you at $12.50. You’ve just spent $13.50 on a stock that’s now worth $15. You’ve made money. I’ve now made $13.50 on a stock I paid $10 for. I’ve made money. It’s a win-win.

Join us for part four on Ask the Experts!