Investing is Not a Game
Today’s Gold Medal Stock Pick!
Sports for Non-Athletes
I love sports. I can remember learning all kinds of sports when I was a kid (about a century ago)! Baseball, basketball, hockey, skiing: you name it, I tried it. Only trouble was I was pretty terrible at all of them. Small in stature and no coordination—that was me.
My dad took me to baseball, basketball and hockey games. It didn’t matter who won. I always had a good time and still remember some of the games we attended together. Mom liked to come to baseball games with us to see her favorite player, Ted Williams.
In high school, I ran track and earned my “letter” in my senior year—I think I still have it somewhere. When I entered Babson College, the college had no track team, so I tried swimming. I enjoyed swimming and learned a skill that would become a staple of my exercise program later in life.
I continue to enjoy sports. I read the sports section every day; I go to an occasional baseball or hockey game and I swim almost every day. I love to watch all kinds of sports on TV, but I avoid spending hours doing it. My favorite sports on TV are the Olympics where the old phrase, “the thrill of victory and the agony of defeat,” comes to life. This year’s Olympics are especially entertaining. It’s amazing what these athletes can do on snow and ice!
The Investing Game
Following the stock market is a lot like following sports, but in this arena, the phrase “the thrill of victory and the agony of defeat” takes on a whole new meaning. Investing is not a game; the victories and defeats involve your life savings. Yet too many investors become lackadaisical and invest in stocks on a whim, as if it were just a game. Games don’t have serious consequences, whereas investing almost always does. Don’t become lax! You should treat every investment as if you are investing all of your money into each and every stock.
Even though investing is not a game or sport, there are several analogies that can be applied. Like an athlete, I try my best to stay focused and stick to my investing “game plan,” in other words, my investment strategy. I won’t buy a stock unless I am convinced that it is the most undervalued stock among the thousands of choices in the stock market. When my investment strategy isn’t working (no plan is perfect), I might make a tiny adjustment, just like Bode Miller might adjust his skiing to different snow conditions.
Warren Buffett is often criticized when the stock market is advancing by leaps and bounds and his investments are just plodding along. Mr. Buffett sticks to his investment strategy, though, because he is confident that over the long term, his investments will provide a satisfactory return. His 20% per year returns are quite satisfactory, indeed.
And we need to learn from our mistakes. Athletes make plenty of them, and the most successful learn from their mistakes and then put the experience behind them. I have always admired individuals who can improve their skills by analyzing what went wrong. Warren Buffett was quick to admit that he made some mistakes in 2008. I’ll bet he won’t make those mistakes again!
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My featured stock today is a telecommunications equipment company that’s winning business from giants like Cisco Systems. I’ve studied the company’s sales and earnings trends. I’ve read about management’s strategies, goals and plans for the future. I’m confident that I could put all my money into this stock, because the outcome is obvious: the stock will be a winner! In fact, I like it so much that I featured it in the January edition of the Cabot Benjamin Graham Special Features Edition, of which I am the chief research analyst.
Arris Group (ARRS 27.87) develops and manufactures equipment and software for cable system operators and other broadband service providers which allow their subscribers to receive a full range of voice, video and data services. Arris also supplies infrastructure products to cable system operators used in the construction and maintenance of hybrid fiber-coaxial (HFC) networks.
Arris acquired Google's Motorola Home business in April 2013 for $2.35 billion. The purchase transformed Arris into the leading supplier of digital video and Internet Protocol (IP) television hardware and software solutions used by global cable, telecom, broadcast and satellite providers. Motorola Home will allow Arris to focus on the transformation from set-top box converters to IP in both the home and in business.
The Motorola purchase has not only made a huge difference in Arris’ sales and earnings, but results are noticeably better than expected. Sales almost tripled in 2013 and EPS soared 65%.
The development and sale of exciting new products, such as video gateway platforms and broadband gateway devices, will provide a big boost to sales in 2014. I expect sales to increase another 40% in 2014 and EPS to rise 29% to 2.00. At 18.0 times 2013 EPS and with a PEG ratio of 0.71, the stock price is a bargain because of the company’s exploding growth. I expect the stock to advance to my recommended sell price within one year. Buy ARRS now.
Until next time, be kind and friendly to everyone you meet.
Chief Analyst of Cabot Benjamin Graham Value Investor
Note: You can read more about Arris and get continuing coverage of the stock, including my recommended sell price, in my Cabot Benjamin Graham Value Investor. There you’ll not only find buy and sell advice for ARRS, you’ll discover additional stocks selling at bargain prices. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks plus my up-to-date predictions for the Dow Jones Industrial Average.