How to invest
Q: How does one go about investing in a mutual fund or an individual stock?
A: You can invest in most mutual funds either through an account you set up at a brokerage, and/or through the mutual fund’s parent company (such as Vanguard or Fidelity). Some funds have minimum initial investment requirements, such as $500 or $3,000. You can look up mutual-fund track records, fees and other information at morningstar.com. For many people, index funds, such as ones that track the S&P 500, are their best bet.
Choose a brokerage account that suits your needs. Fill out an application, deposit money into the account and then buy and sell shares of stocks, mutual funds and more. Note, too, that you can invest in a range of mutual funds through a 401(k) account and in funds and stocks through an IRA.
Q: When one firm buys another, does the acquiree’s stock price always go up?
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A: Not necessarily. If the company’s market value is around $6 billion, and it’s bought for $7 billion, the stock price may jump on the news. When a company is desirable, perhaps due to its products, technology, patents, cash generation or growth prospects, a buyer might be in a bidding war. But if the company’s struggling, its stock price will be depressed, and it might be acquired for relatively little.
Meanwhile, if investors think the acquiring company has struck a good deal, its own price might also rise. But if they think it won’t see a good return on the investment, its price can drop.
Falling oil and stock prices
Dear Fool: My dumbest investment has been in an energy company. It cratered by 65 percent over less than six months, and it kept falling. I hung on, thinking that if it didn’t sink any further and the dividend didn’t shrink, I would break even in six or seven years.
The Fool responds: That’s a dangerous way to think about your investments. If a stock plunges in value, you should know — or find out — why. Then assess whether its challenges will amount to a temporary slowdown or will be life-threatening. Many times, a stock will plunge for good reason, not something you want to hang on to.
Your company fell victim to plunging oil prices and took on a lot of debt. It wasn’t enough, and the company filed for Chapter 11 bankruptcy protection in 2016, essentially wiping out your hope of breaking even. Today, it’s still in bankruptcy, and there is no dividend. There were — and are — more promising companies in which to invest.
It’s a common error to think about staying invested in a fallen company, hoping it will get its act together so that you can at least recoup what you lost. But it’s more rational to sell and invest it in one of your most promising investment ideas.
Shares of rural lifestyle retailer Tractor Supply Co. (Nasdaq: TSCO) were recently down 43 percent from their 52-week high, giving investors a chance to buy a piece of the industry leader for a relatively low price.
What’s going on? Well, customer traffic fell last quarter for the first time in nearly a decade, raising fears that Tractor Supply has gotten caught up in retail’s long-term slump. But weather and calendar shifts played big roles in that slowdown, and there are ample reasons to keep believing in the company’s future.
Tractor Supply is making major improvements to its digital offerings, rolling out a national “buy online, pick up in store” program. Early results reflect increased digital purchasing and also extra spending at stores. The company is also adding a distribution center that will put more of the U.S. population within a two-day online delivery window.
Tractor Supply’s big advantage is its ability to meet the needs of a particular subset of customers: land, pet and livestock owners located outside metropolitan areas.
Its recent comparable sales and profit margin drops are worth watching, but they don’t indicate its lost touch with this shopper base.
With a recent price-to-earnings (P/E) ratio in the midteens and a growing dividend that recently yielded 2.1 percent, Tractor Supply is worth considering for your portfolio. (The Motley Fool has recommended Tractor Supply Co.)