ASK THE FOOL
Q: When I’m reading financial periodicals or watching CNBC, I often see different opinions on various stocks, with some experts saying buy and others saying sell. What’s up with that?
A: Anyone evaluating a company can come away with a different opinion about its prospects and likely trajectory. Even the best stock analysts and investors are sometimes wrong.
Note, too, that each can be different in what they’re looking for — some want undervalued stocks, while others may be willing to take more chances, hoping for a bigger payoff. It’s good to gather different opinions, consider various arguments, do your own research and ultimately make up your own mind.
Q: With mutual funds, are index funds best for beginners (like me)?
A: Low-fee, broad-market index funds, such as those that track the S&P 500, are indeed perfect for most people — beginners or not. An S&P 500 fund will have you instantly invested in 500 of America’s biggest companies. (Many of them have sizable overseas operations, too, giving you international diversification.) Broader funds, such as Vanguard’s Total Stock Market Index, include smaller and medium-sized companies, too, while “total world” indexes also include foreign companies. Seek index funds with low fees. Many charge less than 0.25 percent annually.
Index funds should have you matching the performance of their underlying indexes. If you want to aim even higher, you might study and carefully choose a few individual companies in which to invest — but doing well at that can take a lot of time, energy and skill. It’s hard to beat the ease and results of simple index funds.
MY DUMBEST INVESTMENT
Dear Fool: My dumbest investment? I lost 100 percent of the money I put into a battery company. It made the biggest batteries in the world, mainly for ships. How could I go wrong, right? Well, I didn’t look at the company closely or look up any news on it. All I listened to was the advice to invest in it. It was a Chinese company that cooked its books and had been in trouble with the SEC. Then, when the Chinese stock market crashed, my money went down the drain, permanently. The company no longer exists.
Now I’m more careful, to say the least. I do a lot of my own reading on the companies to learn what they make, what they contribute to the world, whether people really want or need the products, whether they might survive for the long term, etc. Now I’ve been making about 50 percent a year.
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My investment strategy at the moment is to take chances on stocks that I think will grow briskly, but when I do so, I invest the same amount in stalwart blue chip companies, too, or in a mutual fund with bonds. — L.W., Saratoga Springs, New York
The Fool responds: You’ve improved your investing process immensely, though 50 percent returns are not normally sustainable. Balancing your riskier investments with less risky ones is smart.
THE MOTLEY FOOL TAKE
Digital real estate
You may not think of real estate as an exciting technology play, but if you buy into the real estate investment trust (REIT) Digital Realty Trust (NYSE: DLR), that’s exactly what you’re getting.
When you post a message or photo to your favorite social-media site, that data must be stored somewhere. Digital Realty owns and operates data centers, which are facilities designed to reliably and securely house servers and other network equipment. The company leases out space to tenants that include Facebook, IBM, Verizon and Uber — in fact, Digital Realty has more than 2,300 customers renting its more than 32 million square feet of space.
Over time, as data has become more sophisticated and voluminous, it requires even more storage space. The growing need for data centers isn’t expected to slow down. Indeed, the number of internet-connected devices is expected to grow by 82 percent over the next two years, according to research from Gartner, and the markets for data-heavy tech such as autonomous vehicles, virtual reality and artificial intelligence are long-tailed growth opportunities that could cause the data center industry to multiply in size several times over.
Digital Realty has grown tremendously over the past decade or so, and there’s reason to believe that the growth still is in the relatively early stages. Investors can get all that potential along with a dividend that recently yielded 3.8 percent, and that should grow more over time.