Stock Market Rally

Americans are addicted to bad news. So this may come as a surprise. There are stocks within the market that are on fire! I’ll give you one example from my portfolio.


In February, I took dividends from Honda Motor Company (a stock I’ve owned a long time, having a flat year) and invested those dividends in Ford Motor Company. For those who don’t know what that means, investing dividends means that I didn’t put any of my cash in from my accounts, this is money Honda “gave” me as my share in their profits. It wasn’t “real money” but untouchable income, “free money” to me in my IRA.

I bought Ford stock at $1.92 per share on a hunch. (Remember, I was playing with dividends… just cash sitting in my account.) Zooming out on their 3 year history I could see that Ford is traditionally a $10 per share stock. And while they aren’t doing well in the U.S., their European line is doing fine. Since they have a lot less debt and cut deeper, not taking government bail out money, it was reasonable to assume that their sector (American auto maker) had dragged their stock down more than real losses.

Look at March and to-date in April and you will see a massive rally. As of this moment, shares of Ford are trading at $5,98. That’s $4.06 more than I paid for them. Roughly 200% interest. Of course, looking at the chart you can see that I sold some shares at $4.24. Last week, I locked in some of those profits by selling enough shares to cover my original purchase. That means that I guaranteed that I wouldn’t lose any money on Ford… the balance of those shares becomes more free money. So, I took dividend money, which was free to me, and in less than 90 days was able to double it while still holding on to free shares in Ford.

My point is not to make myself look like a genius. Though, right now, I’m feeling pretty good about this investment. Certainly, in the last 5-6 years I’ve made the exact opposite mistake. I invested a ton of my portfolio in Sirius Satellite Radio because they started putting free radios in every car being made, never thinking it was an overvalued stock. The iPod hit it big and Satellite radio became the 8 track player. Shares I bought at $7 and $10 in the early 2000’s… I sold at $3 per share. (Currently trades at .43!) So you can see I am not a perfect investor.

My point is that you can’t base how you feel about yourself on news reports. There’s a lot of talk about our nation being in a recession. Certainly, millions of people are out of work and we are facing a very real housing crisis. But, that doesn’t mean that everything in the world is bad and we should wallow in our depression! There is certainly lots and lots of money to be made. People on Wall Street are making BAGILLIONS of dollars right now while the rest of the nation thinks we are in a borderline depression. (The swine flu is also a great cover for this! Can you say, “distraction?”)

Think of a recession as a shifting of how money is being spent. It’s not that people aren’t spending money. It’s not that there is less money in the marketplace. It’s that they aren’t spending it in places that we expect them to.

How do I know what to look for?

Companies are typically slow to react to that shifting. Ones who jumped the trend, even a little, will do well. Companies that tried to ride out the last few dollars on yesterday’s trend (Just look at every car General Motors had on their line in 2008… another example would be AOL/Time Warner) are going to get punished because they don’t have a product people will buy. You have to be like Warren Buffet. Before you invest in anything, see it. Do your research, read the reports… but that shouldn’t replace walking around a store… or in this case a car lot.

hmm... thoughts

How To Fix the Auto Industry: Get Rid of Dealerships

Sometimes ideas are too simple to actually work. If the United States is going to give $34 billion to failing auto industry, I have a right to give my suggestions for how to fix things.

In order to make it for the next 100 years you are going to have to radically innovate. It’s not going to be easy. It’s going to mean thinking about doing business differently than you ever have. To save the US Automakers, it’s going to mean sacrificing some of what has become sacred for the sake of making it work from here on out. Inside out top to bottom changes are what you need.

This is my first idea:

1. Starting immediately, your cars will only be purchased directly through you. No car buyer likes the dealership process so you need to kill fast Eddie’s business. You don’t buy a washing machine or a computer without knowing what the price really is, so why should you expect people to buy cars that way?

2. Make car buying about the customer and not the dealer. This means you need to add a shopping cart, much like the one from Dell or Apple, to your website. For most buyers, getting a new car is either a very rare occurrence or they do it all the time. Make the website intuitive enough for the buyer to decide their buying experience. Instead of putting them on the defensive with a negotiation process that favors the professional, make the process about the buyer. The customer is your friend! Time to treat them that way.

3. Have a simple pricing structure. Allow people to know how much the car costs you to produce. Then add a 5% profit and a 3% delivery free to that. Show the math. Allow customers to drill down into that invoice so they can see where every single part comes from and how much it costs. Not only will your prices be cheaper than the competition, your customers will know that they aren’t getting ripped off. All the shopping cart to add things one by one or by package. People are smart and they know what they like in a car… give them that ability.

4. Eliminate the local finance office. This is the sleaziest part of the car buying experience. Allow people to buy the car through your finance company, or allow them to use a bank transfer, or even credit card to buy the car. Again, this is about giving your customer a fantastic buying experience instead of walking onto a dealer lot, with your brand on it, and getting screwed by someone representing you.

5. Convert the local dealership into a delivery, customization, and repair shop. By getting rid of a sales and finance people will make the dealership more like the Apple Store. Change the name of these from dealerships to delivery locations. Instead of a sales force you will have genius’s and customer service agents.

6. Only allow customers to come to the delivery center to buy accessories and receive customer care. Effective immediately, you will deliver the car where the customer wants it. Want a test drive, you can arrange to meet them somewhere. When it needs service, you’ll pick up the car free of charge.

7. Every part of your cost should become open. This is about trust. You can make your money. Just be open about it. Customers will reward you for it.

8. Allow customers to sell their used cars on your website. Have the local delivery office come to the customers house, create a listing, apply the proceeds to a future sale.

9. No one in the sales, marketing, delivery process will be commissioned. Pay the people at the delivery centers well, but don’t overpay them. You want these people doing this job for love. A lot of people need jobs. If people at the new delivery centers quit… they will be easily replaced.