Portfolio New Addition: Clorox

A United State-based manufacturer and marketer of consumer and professional products, Clorox is one of the companies in the consumer sector that I have invested in. A look at the rationale behind investing in Clorox and a reminder to why I should continue holding on to it.

Clorox logo | Investor MonkeyClorox Co (NYSE: CLX) is a United States-based manufacturer and marketer of consumer and professional products. The Company sells its products through mass retail outlets, e-commerce channels, distributors, and medical supply providers. The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, which consists of laundry, home care and professional products marketed and sold in the United States; Household, which consists of charcoal, cat litter and plastic bags, wraps and container products; Lifestyle, which includes food products, water-filtration systems and filters and natural personal care products, and International, which consists of products sold outside the United States, such as laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products.

Rationale for Addition to Portfolio

Clorox have grown their dividends at 8.6% annually on average over the last five years. Payout ratio is on the high at 68.4% in fiscal year 2015. Being manufacturer of consumer products means that the sales for Clorox product should see constant revenue from the sale of their products.

Transaction Details

Date September 16, 2015
Shares 4
Price 111.70
Yield (TTM)* 2.70%
* as at time of purchase

Reviewing of Investment Plans

Plans are meant for us to follow. However plans may not be valid anymore as time moved forward or things happened unexpectedly when we are doing our plans. Thus, it is important to constantly review our plans and make changes to them as and when it is needed.

After going through three months of adding companies into my portfolio, I came to realize two things which prompted me to do a review of my investment plans and change accordingly.

The initial plans was to invest on a regular basis, adding shares of companies to diversify and after having up to six companies invested, I will start to add more shares at the start of next year (since I started this portfolio in July, will have invested in six companies at the end of the year).

Problems With the Initial Plan

Plans often work very well in an ideal situation but the world we live in is not an ideal one.

Firstly, when I made the plans, investment commission was not taken into consideration. The broker I am using currently, E*Trade, charges a commission of $9.99 per transaction. The amount that I planned to invest monthly was only $500 and thus, the commission will take up around 2% of my total investment amount. If every month 2% is “lost”, the total cost adds up to a pretty big sum on a long term investment.

This problem arises only because the total investment amount every month is very small.

Secondly, this is just a personal thing, since I would have already done my research and know which companies I would like to invest in, why not just invest straight and collect the dividends from day one (or first quarter for that matter). Because I had insisted on investing $500 a month and having to wait for the next month before my next investment, I had already missed out one round of dividend payout from two of my shortlisted companies.

Moving Forward

I have made slight changes to my investment plans. Instead of adding new positions every month, I will consolidate my investments and add new positions once a year. Though I have not thought of when will I make the investment, but as of current thoughts, it should be in January for ease in comparing how well my portfolio is doing against the market indices. The other time I am considering is in July, the anniversary when the portfolio started.

As of the time when I am writing this post, I have already invested in the rest of the three shortlisted companies which I will be posting the rationale for investing in the companies shortly.

Do leave me comments below on whether I should make my investments at the start of the year or at the anniversary of this new portfolio.

Drawing a Clear Line

Many of us may be trading and investing in stocks at the same time hoping that stock trading can help to boost their investment capital while stock investment helps to build our retirement funds. There is nothing wrong with trading while investing except that some people are doing it wrongly.

Many of us may be trading and investing in stocks at the same time hoping that stock trading can help to boost their investment capital while stock investment helps to build our retirement funds. There is nothing wrong with trading while investing except that some people are doing it wrongly.

I have personally done trading while investing, making the most fundamental mistake, causing myself to lose some of my investments. However, I have also learnt, through the hard way, and will continue doing it to shorten my journey to financial freedom.

Trading vs Investing

Different people understands the meaning of trading and investing differently.

To me, trading looks at technical charts of the stocks to purchase, set up the trades when the price is about to break its previous high and exiting the positions when the chart says so. Apart from using charts, traders can also be trading on news. An example of news trading is to buy Apple Inc (NASDAQ: AAPL) shares in late-August/early-September before their any announcements of their new products. Since most of the times on Apple’s announcement of their new products are well-received by people around the world, their stock price is set to trade higher, selling when the new-product fever subside locking in profits. Trading are short to mid term investing that focuses mainly on entering and exiting positions.

Investing on the other hand focuses more on the fundamentals of the company.

Looking at the business and financials of the company, investors invest their money in the company rather than the stocks. They buy the stocks of the company to own the company, hoping to hold on to the stocks forever or at least till the reasons why they invested in the company no longer holds.

Every Investment Made is Different

Every transaction that was done to buy shares of a company is different. This is especially so if the transaction is to trade the shares or to invest the company.  A trader usually buy shares when the prices goes back to its recent high, hoping that the price will break the high price and goes even higher. An investor on the other hand usually buy shares of the company when the price of the shares is lower than the value of the company.

Some traders they buy shares for a particular reason. It may be that the price turned around and making new highs or that an expected news releasing that will drive the prices up. However, if the price instead of climbing, starts to fall and the traders held on to their positions not wanting to lose money by selling the shares at a lower price than they bought. Usually, these traders will start finding reasons to why holding on is right and the reasons are usually: “Oh, the fundamentals of the company looks okie, maybe I shall hold the shares long-term as an investment”.

Since there are differences between the reasons to trade the shares or to invest the company, one should never “convert” the trades into investments. When a trade is “converted” into an investment, the traders will usually find reasons to justify the conversion and these reasons are usually very unconvincing.

The Bottom Line

As mentioned, I had made the fundamental mistake of converting my trades to investments. In the end, I had to sell these trade-turned-investments at an even lower price than if I had cut my losses earlier. Trades are always trades, investments are always investments. Both are done because of different reasons and usually the reasons are different thus we should never convert trades to investments or investments to trades.