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How Would Grandma Cook Up Profits In This Market? + Vic Wisemann’s Thoughts on YHOO, EBAY, IBM, JNJ, CPB, MSFT, and more...

Vic Wisemann
InvestorsObserver
Featured Contributor

Like many of my friends, I tend to eat out a lot. It's not because I don’t like to cook; I actually do like cooking. It's also not because I don't know how to cook. I had the best teacher in the world when it comes to cooking: my Grandmother. I just can't seem to find the time.

My Grandmother was a really good cook and I'm not just saying that because she's my Grandmother. Whenever we went out to eat, she would always end up back in the kitchen telling the cook what could be better about her entree. Not what was wrong with it, but just some tips on making it better. When I was a kid, it really embarrassed me when she did that.

Read on for Grandma's recipe for baking a great portfolio.

When I was a little older, I got used to it and began to think it was kind of funny to see her head back to "have a word" in the kitchen. As an adult, I discovered she was not just a rambling old lady trying to show off for her family and friends. She really did know what she was talking about.

I came to this realization while I was in college and she came to the restaurant where I was bussing tables. After her meal, she went back to "have a word" and I thought I would have a ring-side seat. I knew the chef to be rather grumpy and not altogether pleasant and I expected fireworks from the start.

As it happens, he was cordial to my Grandmother; apparently he was only gruff with the staff. To my surprise, he was not only pleasant, but he actually listened to her and thanked her for her comments. What really blew me away, though, was when he made some of the changes she had suggested.

My interest piqued and one night I asked him why he would listen to a little old lady. He explained to me about how, years before, she had come back into his kitchen and made a few suggestions and how he was not so nice in asking her to leave his kitchen and keep her comments to herself. About six months later, while still trying to perfect the recipe she had critiqued, he discovered she had been right about the things she suggested. From that point on, he listened whenever she came back to give him tips.

After this revelation, I went back and began to think about what she had been telling me about other things and discovered some really tasty tidbits on investing. She liked stable companies that paid a nice dividend. She also thought it was a really good idea to have dividends reinvested and to only check on her investments monthly. She said since she would not be selling for many years, the day-to-day fluctuations were of little concern. As long as the company remained viable and paid a decent dividend, all was well.

I remember asking her once what she thought of Yahoo! Inc. (YHOO) and eBay Inc. (EBAY). She said she did not understand why anyone would invest in a company that paid no dividend and couldn’t even produce a profit. She thought they were fine companies for speculators to risk their money with, but she couldn’t understand why regular folks would.

When she passed away a few years ago, I was not surprised to learn her stock holdings consisted of Dow Jones components like International Business Machines Corp. (IBM) and Johnson & Johnson (JNJ), along with consumer staples like Campbell Soup Co. (CPB). One surprise was shares of Microsoft Corporation (MSFT), but I guess since the company had positive earnings and paid a dividend she was not scared by the technical nature of the products they sold.

In looking at the list of her holdings, there are some companies that would be nice investments today. Grandma would have just bought the stock and held it, but since the calls are so overpriced right now you could look at a shorter-term call debit spread for some short-term profits. Since they are all dividend-paying stocks, you will want to stay away from the ex dividend dates so you don’t get assigned and stuck paying the dividend.

Looking at International Business Machines Corp. (IBM), you may want to look at the December 70/65 call spread for a 4.50 debit. That works out to an 11.1% return, and the stock would have to fall over 19% to cause a problem.

Before making any investment, be sure you fully understand the risks and rewards involved. If the risk/reward profile of the investment does not fit with your goals and tolerances, then move on to an investment that does. It is far better to follow your own recipe and have a tasty dish than to try someone else's and end up with mush.